RE: More Super ASP StuffJune 14, 1999
Application Hosting: The Next Big
Thing?
By Karyl Scott
he application-hosting market is poised to explode, and some
analysts estimate it will reach the $20 billion mark in 2001. But many big players
are lusting after this potentially lucrative market, including the folks
at Cisco Systems and Oracle.
According to the marketing literature, ASPs are going after the
small and midsize market, but if you look at the client roster of many
of these companies, they're being brought in to divisions of large
companies too. The reason? Cost and time to market.
When To Outsource
An ASP makes sense for large companies that have too many
top-priority applications to manage them all efficiently using an
internal IT staff. Often, it's not the IT department that brings in an
ASP. Business-unit heads may hire one after failing to get the type
of support they want from their internal IT shops. Or, they may need
to implement a new accounting package in a shorter period of time
than their internal IT department and/or consultants can deliver. A
typical consultant engagement for SAP R/3 is three years.
USinternetworking typically gets customers up and running on R/3 in
three to six months, according to VP Michelle Perry.
Why the big disparity between the ASP and more traditional
enterprise resource planning consultant? USinternetworking found
that 80% of a packaged application's functionality is used by all
companies. The customization of the application then is reduced to
the last 20% of the project implementation.
ASPs also help reduce the risk of implementation failure through
standardization and centralized management of system resources.
They're experts at SAP R/3 or J.D. Edwards. That's all they do so
they can easily roll out an upgrade for multiple customers. A
business IT department has limited expertise and resources to
implement upgrades and ongoing system maintenance. And, as
most studies show, the biggest cost associated with an application
is not the initial purchase price but the ongoing life-cycle
maintenance.
Many companies realize ERP software doesn't necessarily give
them a competitive advantage. Because these packages are so
structured, it's difficult for the customer to customize them and
integrate them into Web and legacy applications. For companies
that don't view an ERP package as a competitive tool, it makes
sense to outsource it to an ASP. Decades ago, companies
decided to outsource their payroll systems to third-party service
providers because payroll isn't an area where a company can add
any unique value. The same thinking may soon color the decisions
of large companies when it comes to human-resources and
financial applications.
Nike, for example, decided to outsource all of its IT resources
except custom application development. Those applications that will
be developed internally are competitive, customer-facing systems.
Who Are The Players?
Here's a look at some notable companies in the ASP market today:
USinternetworking Inc. is one of the most prominent ASPs,
following its successful initial public offering in April. The company
was founded in January 1998 and already has a market
capitalization of $1 billion. It's target market is midsize companies
with annual revenue in the $50 million-to-$1 billion range. The typical
customer is the division of a large multinational company, such as
Hershey Corp. and Samsung Corp. The company implements and
manages ERP applications for customers from its four data centers
around the globe.
X-Collaboration Software Corp. focuses on providing group
collaboration services to small and midsize companies that don't
want the cost and effort of maintaining their own applications.
X-Collaboration CEO Kevin Lo envisions his company as a portal
service for business-to-business collaboration. Small companies
rely a great deal on other companies for legal, financial,
manufacturing, shipping services. These companies typically don't
have the financial resources to support the complex business
processes and software packages required for this type of
collaboration, supply chain, workflow, etc. So for a monthly fee, they
can have access to X-Collaboration's application-hosting
services--a fee company officials say is less than the annual
licensing fee of a single E-mail or group collaboration application.
The company's goal is to help customers adapt to market
conditions quickly. It does this by helping to take costs out of
standard business activities.
Resource Partner Inc. is an application outsourcer that will
implement PeopleSoft applications on its facilities and provide
small and midsize companies with T1, virtual private network, or
Web access to its services. Resource Partner handles the
implementation, ongoing application management, and process
outsourcing. The company's goal is to drive costs out of the financial
and HR systems, says VP Sam Amore. Resource Partner started
as a shared services division of Borden Corp., but was spun off a
few years ago. The target customers are companies with less than
$250 million in revenue.