Choosing an ASP

Application service providers (ASPs), which allow companies to rent software applications over the Internet, are gaining ground. But in a survey of 228 U.S.-based businesses with 100 or more employees, Cahners In-Stat Group found that while four in 10 companies said they wanted to outsource their applications, only 16 percent said they would opt for an ASP. In the short term, trend watchers predict that the majority of the approximately 300 ASPs now in business will fail or be bought by larger companies. Still, spending on ASPs is expected to skyrocket.

Types of applications that are currently outsourced by companies with more than 100 employees (38 respondents)

Accounting or financial 42.1%
E-commerce/transaction processing 28.9%
Customer service 23.7%
CRM 23.7%
Collaborative/Groupware 21.1%
Messaging 21.1%
SCM 18.4%
Sales-force automation13.2%
ERP 10.5%
DataBase/Storage 2.6%
Programming/Software development 0.0%
Other/Don't know 7.9%

Applications Offered as Services 1999-2000 (by 100 ASPs)

19992000
Customer service70% 82%
E-commerce 67% 85%
Messaging66%75%
CRM54%63%
Collaborative/Groupware49% 65%
ERP36%49%
Supply chain management35%54%
Sales-force automation34%49%
Other8%10%

SOURCE: CAHNERS IN-STAT GROUP, SCOTTSDALE, ARIZ. STUDIES PUBLISHED IN MARCH AND JUNE 2000

Best Practices for IT

1. Go with a well-known provider. Until ASP startups mature a bit, larger companies should stick with well-known providers for their outsourcing needs, says Kneko Burney, director of markets and computing at Cahners. For example, Redwood City, Calif.-based Kana (founded 1996) and Sunnyvale, Calif.-based eGain Communications (established 1997) each provide customer service applications as well as system integration services. "If you're looking at a brand-new startup with three months' experience, you might want to rethink it," Burney says.

2. Check references. The biggest danger for ASP shoppers is lack of reliability. So if you're looking for an ASP to handle payroll processing or customer service applications, do your research. Find out which other companies are using the service, and talk to them about their experience. If the company is too young to have good references, make sure executives and engineers at the ASP have proven track records.

3. Demand service. ASPs shoould provide the needed training, system integration services and long-term service agreements. In particular, Burney notes, ASPs should have service-level agreements guaranteeing the availability of their own servers. However, if a WAN or client-side problem should occur, the ASP is usually off the hook. "ASPs are generally hesitant to be completely accountable for delivery at this point, mainly because so little is currently in their control," the Cahners report states.

This story, "Choosing an ASP" was originally published by CIO.

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