It’s a buyer’s market for ASPs

For companies that are thinking about getting new business software from an ASP (application service provider) but are hesitant to make the switch, now might be the time to act.

This is the time to do it because vendors are bending over backwards to attract potential clients, said Lise Dellazizzo, Canadian ASP program manager for IDC Canada, an IT market research firm.

The practice of accessing business applications over the Internet, rather than buying the software outright, is still relatively rare in Canada.

“This is still a fairly new marketplace for Canadian businesses. A year ago there were maybe a dozen customers, and now it is closer to 50,” said Dellazizzo. The result: supply exceeds demand. And although demand is trending upward, customers are in the enviable position of being able to sit back and wait for the best deal.

The question is how long that will last.

Research from IDC estimates that while about $69 million will be spent on ASPs this year, that number will rise to $455 million by 2004. In the first few months of 2000, IDC research showed fewer than 40 per cent of Canadian business people had any awareness of ASPs at all. By the fourth quarter of 2000, awareness had risen to about 80 per cent. A lot of those are key decision-makers, and as awareness builds among that group demand is likely to increase, said Dellazizzo.

Despite concerns about an economic downturn, the benefits of an ASP remain as significant as ever. Businesses still need tools to help them manage their workforces. Indeed, one of the primary attractions of an ASP — avoiding the considerable upfront cost for software acquisition and implementation by switching to monthly user fees — may be even more attractive at a time when budgets are tightening. Using an ASP also allows companies to avoid the difficult challenge of finding and holding onto the IT staff required to implement and manage business applications.

“If you don’t have to worry about having to recruit your IT staff you can focus on the core business,” said Dellazizzo.

So if companies are reluctant to switch to ASPs, why are businesses even getting into the vendor side in the first place if they have to hustle to make their sales?

“Because they know it is the way of the future,” said Dellazizzo. “If you want to play in this market you need to at least offer a Web-enabled version of your software. It is the way that things are going.”

In fact, many software providers are putting themselves through the arduous process of reworking their business models just so they can play in the still budding ASP market. Some of them are really going through culture shock, because moving from selling licenses to offering them over the Internet represents a fundamental shift in business models, said Dellazizzo.

Think back 10 years ago, she suggests. How many people were leasing cars? But now it is so common because people don’t have to put down nearly as much money up front and they still get support and service. “You may not own the car at the end of the term, but does it matter? You will always be driving a new car.”

What’s to come

Typically, say experts, Canada lags behind the United States by a few months when it comes to technology adoption. So what is going on south of the border?

Over the last 18 months or so there has been a lot of consolidation and settling in the market. There has been a bit of a wake-up call for providers and now they are busy figuring out ways to differentiate themselves, said Kevin Dobbs, vice-president of products and solutions for Workscape, a provider of online human capital management solutions.

Despite the frantic nature of the market, there is little doubt that companies and HR departments are looking for this type of technology, he said.

And while the shortage of IT people may be an important consideration for companies when it comes time to look for new business software, Dobbs said the greatest appeal is the ability to improve workforce management.

“One of the things that is appealing to them is that they can get their hands around what their workforce is doing and deal with it in a holistic way,” he said.

“Marketing guys love to say ‘This is a great opportunity to get rid of your administration and be more strategic,’” he admitted. But for a lot of HR departments that is as scary as it is appealing.

It means roles will have to change and all of a sudden they’ll be put in the spotlight. But even if they are reluctant to go that route, they will likely be pushed there.

In recent months, there has been a much greater interest from business leaders outside HR departments, said Dobbs.

It is becoming more and more common for HR programs to become corporate initiatives. New goals are being set around attraction and retention and companies are looking for tools to manage those initiatives.

CEOs get very interested in opportunities to reach out to every single person and develop the sense of connection to the organization, and they are attracted to the notion of creating an employee portal where staff can log on through the Internet and have complete connectivity to the organization.

Which is why ASPs are looking at delivering services other than just typical HR programs to strengthen that connection to the employee.

“One of the things that we are working on is, once you get people connected, creating an environment to give people access to value-added goods and services.”

It isn’t trying to sell them things but providing services that help them strike a work-life balance, he said.

In a recent study on ASPs done for AberdeenGroup, a U.S.-based technology-market consulting firm, Kathryn Welds discovered the “unanticipated development” of an increase in the number of people bringing their business software back in-house. There are a couple of possible explanations, said Welds. It may be because employers are still reluctant to give up control. Or else they continue to worry about security even though ASPs have generally done an excellent job on security.

Clients are also concerned about the vendor’s stability in a volatile market. Companies need to know their provider is secure and isn’t in danger of going under. (See box for guidelines on how to evaluate ASPs.)

There is still some question about whether, in the long run, going with an ASP ends up being a cost saver. And although the data may be incomplete, Welds concluded in her report, Human Capital Management: A Guide to the Market and Software Solutions, that the total cost of ownership is less once the lower costs of recruiting, training and retaining personnel are included.

And while there is still probably a lot more settling to be done in a market that saw a flood of venture capital spending in new entrants, some lessons have been learned about the still young industry. For one thing, contrary to much of the marketing hype, implementation is not instantaneous, said Welds. Sure, it is still faster than your typical HRMS or ERP roll-out, but some have been known to take as long as eight weeks. “Which is modest compared to ERP, but it is not a flip of the switch,” she said.

Evaluating an ASP

The following list of questions sampled from Kathryn Welds’ study Human Capital Management: A Guide to the Market and Software Solutions, offers guidelines for evaluating ASPs.

ASP experience

•What is the ASP’s demonstrated experience in the specific industry?

•Who are the business and technical partners of the ASP?

•What business processes are being outsourced to an ASP?


•Is the solution designed to be self-service?

•How are the applications integrated with standard front-office and back-office applications?

•Is anything besides a Web browser required to access the ASP?

•Does the ASP provide a portal, exchange or community site to augment its basic solution?


•What response time and availability are guaranteed by the Service-Level Agreement (SLA)? Aim for 99 per cent uptime.

•What penalties are assessed if the ASP fails to meet guarantees?

•How does the ASP provide redundancy for data, network and disaster protection?

•What service delivery methods does the ASP offer? Does the ASP offer services via Internet, Virtual Private Networks (VPNs), dial-up connection, or Wide Area Networks?

•What is the bandwidth plan for unexpected traffic surges?

•What is the typical time to deploy the solution?

•What is the average time for the users to be productive with using the ASP?

•How is the service priced?

•What additional services may be required after installation?


•Whom does the user call for problem resolution? Look for 24/7 coverage and a single point of contact with problem resolution responsibility.

•What happens if the organization’s application needs change?

•What is the process to bring data and applications in-house after using the ASP?


•What experience does the ASP have in scaling the application to serve more users over time?

•How does the ASP handle a significant increase in number of users or amount of data?

•What are costs for adding more users?

•How much interruption in service is expected when adding more users?

Facility security

•Does the ASP operate its own data center or does it outsource its data center operations to another provider?

•Do visitors sign in and enter the enterprise hosting centre through a secured access?

•Is card-key access required for employees?

•Does the centre provide 24/7/365 real-time monitoring via surveillance cameras, intrusion sensors and motion detectors located throughout the facility?

•Is the network operations centre enclosed by a one-foot-thick wall?

•Is content inspection provided at the perimeter?

•Are there off-site backup facilities?

•Does the facility have remote management capability?

Environmental controls

•Is there a fully developed disaster protection infrastructure, including heat detectors, non-deluging fire-suppression systems, redundant emergency-power systems and leak-detection systems?

•Is there an uninterrupted power supply (UPS) with generator backup and non-corrosive fire suppression?

•Is there diesel backup?

•Is the centre seismically engineered?

Solution access security

•Are there multiple authentication mechanisms to prevent access by unauthorized users?

•Is there router-based access control list security?

•Is there state-of-the art VPN technology?

•Are there multiple security models (object level, hierarchical, organizational, and self-service kiosk)?

•Are there rapid data recovery, and frequent backup via respected providers?

•Is there continuous event logging?

•Is there rigid partitioning of customer data and applications?

•Is there real-time notification of abnormal activity?

•Is there support of multiple network models?

•Are there best-of-breed enterprise servers (Sun Solaris, Compaq, HP Intel-based, Cisco network products)?

Power systems

•Is there a redundant uninterruptible power system?

•Are there multiple built-in redundancies for servers, phone lines and power?

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