Why ASPs are still relevant

The recent news that CRM hosting company RightNow Technologies has filed for an IPO brought to mind both my dealings with the company in a previous life and of the ongoing validity of the ASP business model. When I worked as vice president of operations at another ASP, our client care team used RightNow for CRM services, including case management and integrated Web access for customers. Using outsourced services through a service provider made sense then and it still makes sense now.

It seems that in the rush to blame someone or something for the bubble and burst of the early 21st century we’ve thrown the baby out with the bathwater. While many ASPs have struggled to survive the market’s slow acceptance of outsourcing, others, such as RightNow, have managed to buck the trend and deliver excellent services to their customers.

It is clear that many applications are excellent candidates for delivery over the Internet. Many of the now-defunct ASPs provided excellent services but were unable to achieve the momentum necessary to overcome the economic downturn and the resulting backlash from skittish investors. The question now becomes which investors and technology visionaries will take on the leadership role in this once-again nascent market.

The emerging IPO marketplace points to RightNow, Salesforce.com, and Google as the current probable banner bearers in the near-term, at least. So should businesses trust their core applications to ASPs? Will Web services introduce new potential for improved service models? I will avoid the oft-used answer of “it depends” and argue that the short answer to both questions is, “Yes.”

As a proof point, consider the possible reasons for avoiding the use of service providers. Other than the challenge of the loss of headcount that could result from outsourcing, there are other potential reasons for avoiding service providers. These include the quality of the delivered service, whether the service meets the users’ requirements, and the loss of control that can result from having an application hosted by a third-party rather than by the internal IT department. While these are all concerns to be addressed during exploration, they are often overcome by selecting the appropriate service provider for the users’ needs.

Many objections to outsourcing are really a desire to avoid change and the resulting risk that change can bring. However, that same challenge is what potentially brings significant benefits to those who are willing to work at mitigating that risk by due diligence. It is this realization that will signal the rebirth of ASPs as a solid play for the financial markets and as an effective partner for business.

Returning to our questions, the best practices for core business processes are often more common than we realize. Small customizations can usually account for the seemingly significant differences in the ways that companies have designed those processes. If you consider the success of Salesforce.com and RightNow in the critical areas of sales force automation and CRM, it is clear that this can work well.

That is not to say, of course, that there isn’t room for improvement. But, such is the case with internally managed systems, as well. Interestingly, an ASP offering is far more easy to “test drive” than a typical enterprise software package. And this leads us to our second question on the impact of Web services.

Considering the value of modular programming and the overwhelming success of object-orientation, it should be clear that creating components that do a single job well and then defining standard interactions between any pair of components allows for the creation of powerful, unanticipated application systems. This is effectively the model of Web services, with the components able to be distributed and run by different service providers. As providers become effective at implementing and operating the components, they are pressured to gain competitive advantage by further improving quality.

In short, there are strong reasons for considering a service provider in the context of core business applications and it makes sense to watch for improvements to service components and their delivery as Web services are deployed.