ASPs prepare to make comeback

Many in the industry see the Oracle-PeopleSoft tug of war as a clear indication of the inevitable maturation and consolidation of the enterprise software industry. However, there is another interpretation of the real meaning of this intramural dispute. As the features and functions of today’s enterprise applications become less differentiated, a greater emphasis is placed on the way these applications are delivered and managed. It is this fundamental shift that is rekindling the fortunes of a nearly extinct species of suppliers: application service providers.

Enterprise applications ranging from CRM to supply-chain management (SCM) emerged as essential tools for corporate re-engineering in the 1990s. But it didn’t take long for companies to become frustrated attempting to implement, integrate and maintain enterprise applications. Gartner estimates it now costs five to 10 times as much as original licensing fees to implement enterprise software. Given the hidden costs, many companies aren’t getting the ROI they expected from these applications and are looking for alternatives.

Enter the ASPs. Like many artifacts of the Internet craze, ASPs failed to meet customers’ original expectations and saw their fortunes fade. But now they are attempting to capitalize on customers’ growing frustrations with traditional application acquisition models and willingness to outsource any corporate function that others can manage more economically. ASPs not only are offering a variety of software subscription services, they are expanding into business process outsourcing and utility computing services to satisfy customers’ needs for new business solutions with more-flexible pricing methods.

Yet, even as ASPs gain momentum, they are facing another round of competitive pressures. New “net-native” ASPs, such as Salesforce.com and NetLedger, are selling low-cost CRM and financial applications built to be delivered via the Web. Traditional outsourcers and telecom carriers are offering an expanding array of hosting services. And even the independent software vendors (ISV) are aggressively expanding their application hosting and management service capabilities.

If you are considering outsourcing, ask yourself these questions:

• Which applications are most difficult for you to implement, maintain and manage?

• Is there anything truly proprietary about these applications that prevents you from using an outside service provider to host and manage them? If not, what type of skills are most important for you?

• Do you need to turn to an ISV hosting and management service that has in-depth expertise and experience in its own software applications? Or do you need to integrate a variety of applications in a fashion that many of the independent ASPs can do via their multi-tenant services? Or do you need help managing both your applications and hardware systems, as the major outsourcers do best?

It is a good time to look at application outsourcing alternatives. By clearly understanding your application management and hosting requirements, you can take advantage of the growing assortment of independent and ISV-managed ASP alternatives.