December 04, 2000, 9:58 AM —
Everyone agrees that ASPs are hot. Zona Research reports that more than 80
applications are now available through ASPs. But how hot should they be? What, exactly,
is the ROI from an ASP and how can it be measured?
Many application service providers are less than a year old, and most of their
three-year contracts have yet to run their course. Observers won't know for years which
are sustainable businesses and which are the most beneficial for customers.
"As this new breed of provider struggles to find its identity," cautions Adam
Braunstein of the Robert Frances Group, "CIOs will find varying levels and types of
expertise, capabilities, infrastructure, personnel and quality of service guarantees."
Caveats aside, there are a few things one can do to estimate the ROI from a deal
with an ASP. Researchers and analysts from the Concours Group, Hurwitz Group and Robert
Frances Group have agreed to share their advice with WebBusiness.
ROI -- Measurability Varies by Company Need and Longevity
Dr. Ed M. Roche, a senior researcher with the Concours Group, says an ROI estimate
can be made for some, and only for some, ASP agreements. These agreements are
differentiated by the company's needs. Roche suggests examining three needs: quick
implementation of desktop applications, inexpensive integration of an ERP system and
diminished time to market.
A company considering using an ASP to provide an application such as Lotus Notes
can estimate potential ROI relatively easily, Roche says. The typical measurement Roche
recommends for desktop applications is cost per seat: a user estimates the cost per
seat of its in-house application and weighs it against a per-seat bid from an ASP.
An ASP customer with no ERP system seeking complete service -- and not an upgrade
an existing ERP application -- can also estimate the ASP's value with relative ease. By
comparing the cost of a typical ERP installation with the smaller fee charged by the
ASP, the company can see how much it stands to save by using an ASP. If the money saved
can best be used developing a product or in another investment, the company will likely
want to outsource its ERP systems.
Companies who use an ASP to speed time to market, however, will have a much harder
time trying measure ROI. Unless they can accurately predict the cost of letting
competition gain market share, they can only be certain that its better to get to
market sooner than later.