Calculating ASP ROI, part 1

ROI is an important acronym nowadays. Even for ASPs. For about a year, most people assumed that a return on investment analysis for ASP adoption was a foregone conclusion to be in favor of buying services from ASPs. However, in my traversing of the ASP marketplace, I don't recall seeing any ROI analyses that proves this case. It was just a matter of common faith.

Two years' ago, as a product manager for an ASP, I had to choose ASP services for application adoption. I felt a need to justify the purchase of ASP services beyond the need to roll out applications quickly and leverage the expertise of ASP personnel.

I've done dozens of these analyses over the years, for various companies and I've always hated the fact that they never seemed to be repeatable processes. I had to spend weeks doing IT, business, and sales interviews in order to come to reasonable cost, benefit, and return analyses.

I'd hoped, while I was at this ASP, that I'd be able to leverage existing work that people had done in analyzing and determining the ROI dependencies for ASPs. But I never found anything that I could use so I had to do the analyses (about half a dozen of them) from scratch.

The need for ASP ROI analysis is even more necessary now since enterprise IT staff are pressured to show real financial benefits for their spending. I suppose this is no surprise in the existing market conditions.

In my opinion, ROI analyses are best done as a collaborative affair between the ASP and the customer. There is usually a champion within an enterprise who is interested in the ASP model and they have to convince their bosses that an ASP is the right solution for their needs.

What enterprise users typically like to do is take a general ROI analysis from the ASP or other service provider and then customize it for their own corporation so that it relates to the costs and pain points that matter to corporate executives.

At EMA, we are requested more and more to do ROI analyses for vendors and enterprises and we've come up with several points that are repeatable for the ROI investigation. That made me extremely happy.

Next week I'll detail some of the methods used to determine product valuations.

Senior Analyst Tim Wilson is with Enterprise Management Associates in Boulder, Colo., an analyst and market research firm focusing exclusively on all aspects of enterprise management. Wilson has over 10 years of experience in covering e-business and enterprise management issues, most recently with InternetWeek, where he was chief of reporters. He can be reached by clicking here.

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