ASPs in the Real World

As I write this column at the end of 2000, the dot-com world is still in the grip of the economic crash that the ruling in the Department of Justice's (DOJ's) case against Microsoft touched off in mid-2000. The stock markets are down, and the NASDAQ seems hell-bent on sliding into oblivion as it is continually rocked by announcements of reduced expectations in the earnings of the companies it represents.

The bloom is off the Linux companies that went public with such fanfare in the previous 18 months, and the mainstream media is replete with stories of dot-coms closing their doors or precipitating massive layoffs. On an almost daily basis, I receive phone calls from friends and acquaintances who are looking for freelance work or for leads to companies that are hiring technical staff. All is not well in Mudville.

Even though at first glance the dot-com casualties seem evenly spread across the high-tech industry, I've noticed that the e-commerce failures are the most heavily reported. The most recent reports I've seen seem to say that the traditional brick-and-mortar operations that are moving into the e-commerce world are showing more staying power than dot-com start-ups, as if we should be surprised that long-established businesses moving into new sales avenues should actually be able to succeed by doing so.

The Quiet Companies
One market segment that I've heard little from recently made a lot of noise in early 2000: the application service provider (ASP) sector. I hear frequently from vendors that provide services to ASPs, and we've covered ASPs occasionally in Windows 2000 Magazine and extensively in the Application Service Provider UPDATE email newsletter (to subscribe, go to http://www.win2000mag.net/email). But given the hype that accompanies so much reporting about high technology, the ASPs themselves are strangely quiet.

My curiosity about the industry got the better of me, so I surfed over to http://www.allaboutasp.org, the home of the ASP Industry Consortium. From this site, the ASP business looks rosy. The consortium claims more than 700 members worldwide. The site contains press releases and white papers that address many of the concerns that have centered on the ASP business throughout 2000. The consortium tells us that ASP customer concerns are primarily uptime and security, the two bugaboos that are the biggest problems facing the ASP business model.

I've always found the ASP business model to be suspect. Although on the surface being able to minimize your capital investment in networking and systems hardware and infrastructure seems like a good idea, I don't see how an ASP vendor can get past the central problem of the Internet's lack of reliability as a distribution mechanism for the ASP's services. Even security problems are secondary to the lack of control you have over your data when you let an ASP store it off site.

The ASP Industry Consortium Web site offers a white paper about service level agreements (SLAs), but this resource is available to only member companies. The consortium offers a short brochure to potential end users that does little to assuage my concerns about the viability of the ASP market segment. I'd be curious to hear from ASP customers about the service agreements they've signed and what kinds of guarantees their ASP vendor provides. The consortium brochure points out that at least four components make up an SLA: the network, hosting, application performance, and Help desk. Giving a reasonable guarantee of service at a reasonable price for the last three components is certainly possible, but guaranteeing network connectivity is a dicey proposition.

Searching for a Sign
I'm still open to evidence that my opinion of ASPs is incorrect. After all, the number of ASP vendors continues to increase, so a compelling business case for ASPs must exist. The ASP Industry Consortium recognizes those of its members that epitomize best practices for the ASP industry with ASPire Awards in four different categories: Delivery, Integration, Enablement, and Management and Operations. I thought that the finalists for and winners of these awards would provide examples of implementations that would dispel my concerns.

Unfortunately, I was disappointed by the finalists for the awards and the eventual winners. I can't say the winning case studies don't represent interesting and technically innovative approaches to problem solving, but a significant percentage of the solutions were for the benefit of ASP vendors. Of the solutions that did benefit customers, most addressed small pieces of a much larger IT puzzle or were small-scale thin-client network implementations that replaced obsolete PC-based systems. The most interesting solution provided IT services and equipment over the Internet to thin clients at a very small private school. This solution is a great example of a service taken from the original ASP-model mold, but it lacks one very important detail from that model: It isn't a key component of a mission-critical business operation. If a small school doesn't have access to its computer software for a few hours or days, the school just moves on to another subject in the curriculum—it doesn't go out of business.

A Limited Model
That the ASP model focuses so closely on mission-critical business operations is unfortunate. Whereas ASPs like to tout their advantages in cost savings for large corporate infrastructures, huge opportunity exists in the low end of the market, as that small school demonstrates. Computer technology is a black hole for many small businesses, and the ability to outsource IT operations to an ASP is attractive to small businesses and start-ups. Such businesses know that making use of technology offers advantages—and they also know that the entry costs are high. Not every business is lucky enough to have a reliable computer guru on staff to guide the operation through the shoals of technological innovation.

Until reliable connectivity is available at a reasonable cost (multiple redundant T1/T3 connectivity to independent Internet backbone providers is extremely expensive), little chance exists that any business will be willing to risk having its essential business data reside off site. I'm confident that ASP security concerns are resolvable and that convincing customers that their data is safe will become strictly an element of the sales pitch and won't reflect a genuine technical problem.

I generally don't like making predictions and don't consider myself to have special precognitive ability. But I'm firmly convinced that until the network-availability problem can be resolved—and not only from a technical perspective but from a cost perspective as well—the ASP industry's future will be limited to bits and pieces of a much larger potential market. And I don't see how much longer the industry can continue to grow by providing services to itself. Eventually, ASPs will need to tap the rest of the world as a customer base.

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