ASP advice

By LAUREN GIBBONS PAUL
Network World, 02/07/00

The idea of using an application service provider (ASP) is certainly appealing, but don't think you can just kick back and relax while someone else handles the job of running your company's applications.

"There is an out-of-sight, out-of-mind tendency [in ASP customers]," says Lew Hollerbach, senior analyst with the ASP practice of Aberdeen Group, a Boston market research firm.

The truth is, you must manage your ASP just as you would your in-house staff. After all, an ASP is an extension of the IT department. If anything, the management challenges are greater because the ASP will not be located within the four walls of your organization.

Once you decide to cede control of your corporate applications, the following tips from some of the first network executives to use ASPs will come in handy:

l. Choose wisely. To prevent headaches down the line, use great care in selecting your ASP. David Blumhorst, director of IT at Clarent in Redwood City, Calif., says that price should not be paramount in picking an ASP. "You have to look for the expertise, check references, visit their site, meet the people," says Blumhorst, who rents the PeopleSoft enterprise resource planning (ERP) application from Corio.

Remember, when you're buying a service, you're buying people, says Jonathan Lee, founder and chief strategy officer at Corio, also in Redwood City, Calif. So make sure you have a single point of contact for the ASP, and make sure you like that person.

2. Have a backup plan. Before you sign on the dotted line, make sure you scope out an exit plan if your ASP has performance problems or even goes out of business. Curtis Dudnick, chief financial officer and secretary of CoSine Communications, a maker of IP telephony equipment in Redwood City, Calif., had risk management principles in mind when he crafted his firm's contract with the ASP Applicast. Dudnick made sure there was a provision for CoSine to take over the contract with Applicast's data center provider, GTE, if necessary. Dudnick also arranged to have ownership of the application software automatically transferred to CoSine if Applicast failed. "With any ASP, there's not a lot of history. It was a new, unproven area. But the model was so appealing, I was willing to try it," he says. So far, so good, he adds. Applicast has met its service levels, and Dudnick is pleased with his decision.

3. Keep the communication flowing. As much as you might want to concentrate on your own job and put the ASP relationship on the back burner, don't do it. Check in with your ASP contact at least once a week by phone. "We have weekly reviews of how the application is performing," says Ed Hayes, vice president of corporate development at Flash Electronics, a contract electronics manufacturer and ASP customer in Fremont, Calif.

If your contact isn't responsive, demand a new one. At this early stage in ASP adoption, the company will probably do whatever it takes to keep its customers happy.

4. Don't take service levels for granted. "You shouldn't take their claims at face value. Trust, but verify," Aberdeen's Hollerbach says. When you're renting a high-stakes application such as ERP, you should invest in your own performance monitoring tools. "Service-level agreements are very hard to measure and enforce in the absence of a tool kit. That's one of the dirty little secrets of the ASP industry," says Greg Kee, vice president of marketing at Xevo in Marlborough, Mass. Xevo sells service management platforms to the ASP industry.

5. Insist on extra services. With what seems like hundreds of new companies calling themselves ASPs every week, it pays to remember that just hosting an application does not an ASP make. Many ASPs offer value-added services at no extra charge. For example, Dave Charlton, chief operating officer and chief information officer at the herbal product company AllHerb.com in Laurel, Md., got free marketing advice from his ASP, Pandesic. "They can tell us about things that have worked for their other clients. They share marketing knowledge - it's like being part of a coop," Charlton says. Because Pandesic is paid based on its customers' site volume, it has good reason to want them to succeed.

6. Make sure there's flexibility. ASP contracts are much more flexible than the multiyear, monolithic contracts with traditional outsourcers. If at any time you feel your pricing arrangement has become less than ideal, don't be afraid to speak up. "Contracts must reflect the appropriateness of the business deal. Our customers need to renegotiate pricing all the time," Corio's Lee says. "We focus on rapidly growing companies that are living on Internet time. Change is a constant."