Business not yet bitten by the ASP
1 April 2005 | 0
Surely you are still not buying boxed software? It’s 2001 for goodness sake. According to some IT consultants, no one should be buying software anymore. Instead, we should be treat software like our electricity supply, where reliability is taken for granted, there is no major capital investment and software is paid for as it is used. Such are the claims made by the champions of the application service provider (ASP) model.
Under the ASP model, you rent software rather than buying licences and hardware. The software supplier, not your company, deals with the headache of integration and the costs of hiring and training software administration staff. The software is hosted elsewhere ‘down the line’ and you pay a fixed monthly fee based on a service level agreement setting out exactly what you will get for your money.
Back in 1999, the prognosis for the ASP model was very rosy when it first began to be taken seriously as an alternative to the shrink-wrapped model. Oracle has long been a champion of such a decentralised model—ever since Larry Ellison announced the death of the PC and the imminent victory of the NC or network computer—and Dermot O’Kelly, MD of Oracle Ireland, says the company remains committed to the ASP model.
‘It’s still a relevant model, the logic is too compelling,’ says O’Kelly, citing the example of a house builder who complains he cannot get IT staff to run his financial systems. ‘They just want financials, why not just buy them, why are they in the IT business?’
Pain in the ASP
O’Kelly is also clear about why the ASP model has failed to live up to its initial promise. ‘A lot of the messages were confused — ASP was going to be all things to all men,’ he explains. ‘It was like the dot.com goldrush — everyone was offering ASP services, but not everyone was capable of delivering it. As a result the title ASP has been tarnished — there were people in the market who shouldn’t have been there.’
While the ASP model as had a hard time internationally, it has fared even worse locally. While JD Edwards has signed up over 250 companies in 18 countries for its enterprise resource planning (ERP) software accessed via ASP, none of these are in Ireland.
Tiernan Quinn, sales and marketing director of Software Resources, JD Edwards’ Irish business partner, says that despite having a proven methodology to deliver the software in Ireland, with pricing structures and hosting partners lined up, to date no Irish customers have taken up Software Resources ASP offering. A number of Irish businesses have made enquired about using JD Edwards in an ASP environment, but Quinn admits: ‘If I were to give ASP a school report it would be “could do better”.’
Customer relationship management (CRM) software specialist Siebel Systems has backed away from the ASP model despite having geared itself up to deliver its software through service providers. However, Phil Codd, Siebel Systems’ country manager for Ireland, believes that the ASP model is inherently suitable to smaller companies rather than the mid-size and larger organisations.
‘The general thrust of ASP is that one size fits all,’ says Codd. ‘Small companies may be happy to take that as they are more willing to change their business processes. Medium and large companies still prefer to own the software and have control over what it does for their business.’
CRM and ERP are two categories of corporate software most often considered a good fit with ASP. All the Tier 1 players such as Oracle, SAP, JD Edwards and Siebel Systems have gone after the ASP market in one form or other. Their aim has been to win business from smaller companies who otherwise would be put off by the disruption and cost of implementing CRM and ERP software in their own environments. The Tier 1 players move towards ASP was also a response to the fact that many client companies found that the cost of the licence was just the tip of the iceberg when it came to implementing a major system.
The ASP model brought Tier 1 software into the range of mid-market companies, according to Joe Flynn, MD of i-Fusion, an ASP specialising in offering the MySAP suite from SAP. He says that with ASPs, ‘companies can have world leading applications without the pain of owning, running and managing the hardware, software, licences and recruitment issues’.
I-Fusion claims to be the largest SAP application service provider serving the UK and Ireland and the company had revenues of £7m in the financial year ending last June. Despite the fact that the company, which is a subsidiary of the Horizon Group, is not expected to be profitable for another two years, Flynn is bullish about the success of the ASP model.
The regional airline Aer Arann Express is a typical i-Fusion customer. Thirty airline staff in Dublin and Shannon use MySAP for back office and call centre functions, particularly the financial, human resources, administration and call centre modules. Aer Arann’s use of MySAP will also soon be expanded to cover sales, reservations and bookings.
One of the main advantages of the ASP model is the cost structure. Rather than making a major capital investment in hardware and software with the additional ongoing costs of staffing and licensing, ASP customers have fixed annual costs. Flynn says i-Fusion customers are billed per user per month over a three or five year period. ‘Because it’s a fixed cost over three years, it’s like a utility model,’ says Flynn. ‘You only pay for what you use.’
Paraic Hegarty, a partner in the e-technology services section of Deloitte & Touche believes the costing of ASP is very attractive. ‘You can’t argue against the business case,’ says Hegarty. ‘When you consider the return on investment, it’s cheaper in the medium term. The expenditure is current, rather than capital, and that means the smaller guys have a chance to play with the big boys.’
Using a service provider for the delivery of applications also has impacts on staffing and the availability of resources. ‘Availability of people is a big issue,’ says Hegarty ‘Operational roles are not that attractive to IT staff, so why not outsource that problem and let the people in your ASP’s control centre monitor your system.’
Oracle’s Dermot O’Kelly believes large scale IT projects that look to standardise back office processes are not the best use of resources. ‘Most companies are tying up IT resources making themselves the same as other companies rather than differentiating themselves,’ he says. ‘They should be using IT to differentiate themselves, rather than wasting the talent pool on producing reports, closing the books etc. With ASP you have a fixed cost every month and that allows you to focus on other aspects of the business.’
The ASP model also enables applications to be rolled out significantly quicker than if a client was to integrate them into their own IT infrastructures. Time scales of between eight to 12 weeks for implementing ERP and CRM packages via ASP were cited by almost everyone spoken to for this article. In fact Salesforce.com boasts even more impressive lead time: Klaus Kremer of New World Commerce, which uses the sales force automation module of Salesforce.com, said ‘I literally had it up and running in a couple of hours on a rainy Sunday afternoon’.
With the implementation of a Tier 1 ERP systems often measured in years rather than months, the attraction of ASP’s speedy delivery is obvious. As Hegarty of Deloitte & Touche put it: ‘The application is already up and running — you just have to say whom you want to give access to.’
In addition to fast roll outs, ASP customers can avail of the latest version of the software — as one update on the server gives all users access to new software issues. This ease of update is one reasons why Salesforce.com can have a new release of its software every three months.
‘We can see over a period of time what customers want and then can make changes accordingly,’ says Fergus Gloster, Salesforce.com’s vice president of marketing, business development and product management. ‘Making an existing software package available over the Web would not work—they are built for large-scale client-server environments. We have built our software from the ground up and it is designed to be multi-tenant.’
In the past two years the kind of fast growing companies who needed integrated financials, payroll, HR and CRM in a matter of months or even weeks were mostly dot.coms. While many of these have gone out of business or scaled back massively, the typical early adaptor of ASP is still likely to be a technology-related company. For example, Salesforce.com’s Irish customer base includes Cape Clear, New World Commerce, Qumas, Sercom Solutions, Soft-ex, Spectel-Multilink, and the Wolfe Group.
There is a trade-off for such a fast deployment time and that is the ability to fully customise the features of the software — a traditional selling point for SAP, JD Edwards and the other big boys. At Software Resources, Quinn believes this is the major flaw of the ASP model. He maintains that organisations considering an ERP product need ‘configurability’ to ensure software can be mapped to their unique business processes. ‘You can’t blindly go into an organisation and rent an ERP package for £350 a seat,’ says Quinn. ‘You have to understand the business and implement the software accordingly. Other wise you are making the customer use the pre-configured options and making their business fit that.’
The ASP houses are not deaf to this criticism. According to Joe Flynn of i-Fusion they offer an ‘80 percent pre-configured solution’ and he admits that this is one of the trade offs of the ASP model. ‘We can localise it for key parts of the business,’ says Flynn. ‘If everyone had the same pre-configured software it would become a commodity. If a company has 80 business processes, they probably have three or four that make them unique — we can make sure we fulfil those.’
Bandwidth is key to the use of ASP. If you can’t connect to the data centre hosting your applications, you can’t work. While much has been written about the cost and availability of bandwidth in Ireland the experience of companies who have already outsourced applications illustrates the problem. According to Paraic Hegarty, Deloitte & Touche outsourced its Microsoft Exchange-based e-mail to its regional technology centre in the UK. ‘We have a leased line from Dublin to Milton Keynes. We had great difficulty sourcing that bandwidth and more problems when we needed extra bandwidth,’ he says. ‘The reliability is also suspect — on average we have one day a month lost. There are work arounds, such as post, couriers and faxing. But I do not know what we would do if that was our financials — we would not be able to work.’
The lead time to deliver bandwidth in Ireland also comes into play when ASP is being sold on its speed of implementation. Although i-Fusion’s Flynn does not believe bandwidth availability is a pre-requisite for using ASPs, delays in bandwidth delivery have held out some of his customers’ roll-outs. In one instance, the MySAP solution was delivered within a 12 week time frame but the telecommunications company involved was not able to deliver ISDN connections within that period.
Dermot O’Kelly believes that most ASP offerings can operate with limited bandwidth, but admits it is a concern for Oracle customers. To sidestep the issue Oracle operates an ‘our place or your place’ strategy. In the our place model Oracle operates as a typical ASP hosting the application in its own data centre. With the ‘your place’ strategy the application can be hosted at a venue of a customer’s choosing. ‘If the clients are ‘data hoggers’ and have the skills to look after the hardware, Oracle can just look after the software,’ says O’Kelly. ‘It can be hosted at a data centre in their building or they can go to a third party.’
While the pure ASP model may not be finding much traction in the ERP and CRM spaces, elements of the model are being implemented. Distributor Data Solutions recently introduced a managed application delivery service based around its expertise in Critrix thin client technology. The managed service also pulls together products and services relating to security, network and bandwidth performance and connectivity. Francis O’Haire, technical director at Data Solutions likens it to using your IT department as an ASP. ‘It’s the Holy Grail of centralised computing to host all applications centrally,’ O’Haire claims. ‘It gives you full control over what’s on the desktops and, if you want, you can use Windows or dumb terminals. In reality most customers take the mid range approach with the key business applications hosted centrally and the productivity applications such as Office and e-mail on the desktop.’
At Siebel, Phil Codd has also noted this trend towards managed services as a half way house on the road to adopting ASP fully. ‘Managed services give you the best of both worlds,’ he says. ‘Because you can tailor and customise the software to meet individual business needs.’
With few companies willing to be the trail blazers and outsource their mission critical applications this cautious approach to adopting the ideals of ASP looks like the way forward. And for the moment the ASP report card still reads ‘Could do better’.