Application Service Providers add value to businesses
For most people Internet Service Providers and Email services have been the limit of an application service provider. Web hosting services, email and fax service providers have all helped bring the Internet services to our homes and a much-needed facility to small businesses. Website hosting and 800-number services have been available to businesses for a long time.
These services are examples of simple Application Service Providers (ASP) [Manage_More, 2004]. Another much more important type is that of Application Service Provider offering a specialized web-based solution to businesses. These ‘traditional’ ASPs often use the terms like ‘Internet Enabled Software Providers’, ‘Web-based Software Services’, and ‘Online Software Solutions’ to market their services [Manage_More, 2004].
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Low cost start-up, short set-up times, pay-as-you-use option, low or no IT staff requirements and elimination of the cost of setting up own IT infrastructure have proved just too attractive for a number of businesses. The companies using ASP have been able to increase their business, improve their services and achieve high customer satisfaction by using web-based services [Desai & Currie, 2003]. ASPs have proved to be cost effective for most of the companies using their services. ASP services have not been universally problem free.
The problems such as the impact of ASP going out of business, risk of loosing business secrets, as part of control over business is transferred to the ASP and problems such as breakdowns at the ASP affecting the business using that ASP are some of the concerns in using ASP services to meet the business demands [Manage_More, 2004]. This paper assesses the importance of ASPs to the business sector. The factors favoring the use of ASP services as compared to setting up in-house IT resources, the risk involved in using ASPs and the future of ASP based software solutions is also explored. How Does ASP Work?
Application Service Providers are basically outsourcing companies and present all the advantages and disadvantages of working with an outsourcing company. The availability of Internet and options such as Virtually Private Networks (VPN) has enabled the ASPs to host an application on their Web server. A desktop program such as NT terminal Server or Internet Explorer links the client with the application. The client using the ASP does not have to invest in complex infrastructure, technical human resources and can start using the application without the long set-up time required to establish in-house resources.
For a company hiring the ASP, using the IT capability is immensely simplified. The software applications are hosted and managed offsite and accessed on company PCs or terminals either through the Internet or by VPN. The staff trained in normal PC or terminal use only need to learn the basic features of the software and the need for specialized IT staff is eliminated. Advantages of Using ASP Services to a Business One major reason for using the ASP services is the reduced cost of availing software applications, but in addition to reduced costs, the ASP outsourcing makes life easy in other respects too [Accounting, 2007].
The increased complexity of software has made them extremely expensive. In a company, having thousand of desktops an upgrade of simple software such as MS Office can cost millions of dollars. Using an ASP eliminates the needs to upgrade software and save this investment [Manage_More, 2004]. Immediate Availability: The customer does not have to worry about building the necessary infrastructure or implement resource plan. The services can be used as soon as the ASP contract is negotiated and accepted.
Cost of IT use becomes predictable: The customer knows the ASP charges in advance. The charges often have an initial set-up fee and a monthly rental charge per user. The customer can add dispersed offices to the same ASP and additional facilities in upgrading local technology environment in other locations are avoided. The costs of software upgrades are included in the ASP charges and the business does not have to invest in expensive software upgrades. Hardware & Software Issues Elimination:
The customer using the ASP software solution does not have to invest in rapidly depreciating hardware and software, need for highly skilled IT professionals is avoided, geographically dispersed units do not add to the requirements for additional hardware/ software and skilled human resources costs [Accounting, 2007]. Improved Ability to Compete: Even small and medium size businesses acquire ability to compete with larger businesses in the global market place. Small companies do not have to invest ten of millions of dollars to build facilities like large multinationals.
Thus the advantages of the availability of access to latest technology without the administrative responsibilities or cost of setting up IT infrastructure, focusing on own business instead of IT problems, access to comprehensive security without fear of loss of data, predictability of IT costs are some of the advantages that have favored the use of ASP outsourcing [Accounting, 2007]. Disadvantages of Outsourcing to ASPs The advantages of ASPs described above are now well known. As a large number of ASPs are vigorously marketing their services, the advantages are what we normally hear.
One often forgets the potential risks of using the services of ASPs. For most small and medium size companies, the costs and technical factors of owning own IT facilities is impractical and despite the disadvantages small and medium size businesses often do not have any other option. An awareness of the disadvantages is however just as important as knowing the positive aspects of ASP services, as only then, the businesses can be aware of the pitfalls and try to minimize the risks to ensure that the ASP services add value to their business and not become the cause of their bankruptcy.
It has to be remembered that ASP is also a business and like other businesses ASP can become insolvent and go out of business. Any business using an ASP as outsource is sharing its information with an outsider. The money saved and quick startup is at the expense of some loss of control. The business suing an external ASP must prepare contingency plans to ensure that the data stored is not lost, the data must be backed up in a form that can be used by an alternate ASP should the present ASP go out of business.
[Roberts, 2003] writing on human resources services being offered by ASP warns that organizations considering the switch should make contingency plans. “We put a lot of eggs in one basket,” he quotes one business using ASP for HR. “We had contingencies, and we still do. If our ASP were to suddenly go under, we have plans to either find another ASP or bring it in-house. [Roberts, 2003] ” Concerns regarding finding an alternate web based solution, downtime involved if the present ASP goes out of business, the sensitivity and importance of the data exclusively stored at the ASP and the business revenue lost during a replacement must be assessed.
The risks involved in loosing a simple ASP are normally low as a replacement can be quickly found and an alternate email provider and web hosting service can be quickly found. The customers sending email or searching for the website can be automatically directed to the new ASP and in most cases switch to another ASP only means short-term inconvenience [Manage_More, 2004]. Network breakdown at ASP due to power failure, system maintenance or software problems lose productivity and sales of the company using the ASP. The ASPs often have short (1-2 hours) back up supplied by batteries and uninterruptible power supplies (UPS).
A longer break in the power supply can become a problem [E-Business disadvantages, 2007]. An electricity breakdown in California in June 2001 shut down thousands of business websites for hours [Cited in E-Business disadvantages, 2007]. ASP adding Value to Businesses Having discussed the advantages and disadvantages of ASPs, we can now look at the role of ASPs in increasing the profitability of businesses. IT is a highly specialized area requiring huge investments in technical staff hire and training, sophisticated hardware and specialized complex software.
It is normal to expect that small and medium size companies would find it difficult to set up the required level of services at their own site and from there own resources. Most businesses feel that they are business of their own specialization travel, estate agency, health services etc and not in IT. They prefer to use ASP to handle that part of business and the experience for most businesses has not been disappointing [Mears, 2002]. An investment firm, Frank Russell claimed that their use of ASP for human resources application provided them a 200% return in ‘just the first year’.
For a company that would have been happy to break even this was a pleasant surprise [Mears, 2002]. Another survey of 54 businesses using ASP outsourcing for their HR requirements reported 400% return on investment over a 5-year period. [Mears, 2002] pointing to this promising survey insists that despite this kind of attractive returns and the customers need to thoroughly research on ASP before signing up contracts and have an opt out option if the ASP runs into trouble. In e-commerce applications, using ASP has been advantageous for both small and large companies.
Most companies feel that the value addition in terms of increased productivity and business process enhancement are the main advantages and one business described this advantage as ‘equivalent of two third of the benefits’ [Mears, 2002]. When a new small or medium business comes into operation its budget are often limited, setting up IT facilities is not even considered at that stage as the importance of getting up the application quickly becomes much more important than the costs and competitive advantages.
Berlitz considered the importance of being able to get online in three days as a benefit that outweighed many other factors. Even for Berlitz, later analysis showed that the firm saved ‘at least $300000 in the first year’. For small businesses, ASPs ability to provide the technical expertise of using e-commerce application is in itself the incentive to use ASP services. A company trying to reach its customers through Internet for most of its business without having in-house IT resources would be very difficult.
ASPs can fill the technical gap and help the small business in developing IT resources very quickly. One small business manufacturing dental materials found that ASP met their e-commerce requirements faster than they ever could. “”They got all our information together, got it displayed properly laid out Web sites, did the art work, did the network architecture, did the database architecture, got the systems in place – all in four months. It would have taken us two years to do something like that” [Mears, 2003].