By
contracting with ASPs, small businesses no longer would need to
purchase, install, customize, troubleshoot, maintain or upgrade
complex software applications. Rather, small firms would pay a
monthly fee, and possibly a setup or installation charge, to an ASP
that would host the desired software application on an outsourced
basis on the ASP’s server.
All,
or nearly all, computer support tasks would be taken care of by the
ASP, with presumably a large, well-trained 7-by-24 IT department.
Small businesses would need only to arrange for reliable, high-speed
Internet access.
Application Service Providers ASP Appeal to Software Vendors
Software vendors such as Microsoft also loved
the idea. With such mature products as Microsoft Office and
Microsoft Windows, Microsoft felt that software subscriptions would
transform a one-time purchase into an annuity. And Microsoft was
hardly alone. In the small business accounting software space,
Intuit, Oracle and Peachtree all jumped in as early promoters of the
ASP concept.
The sales pitch for rentable software as a
service sounds great -- on the surface. After all, small businesses
were comfortable outsourcing their Web site and e-mail hosting to
ISPs. So wouldn’t it be the next evolutionary step to outsource an
accounting or contact management program? Not so fast!
Application Service Providers Financial Realities
In early 2001, Gartner Dataquest (www.gartner.com)
predicted that about 60 percent of ASPs would be out of business by
early 2002. Thus far, Gartner Dataquest’s forecasts have appeared
dead-on. What brought this about?
And why wouldn’t small businesses be more
enthusiastic about the prospect of turning their software headaches
over to someone else?
Security Concerns with Application Service Providers and Lack of
Affordable Broadband Internet Access
For starters, small businesses were rather
leery of handing over confidential data to another firm. And what
could be more highly prized than customer or financial records?
High-profile hacker attacks, although rarely
made on ASPs, also have shaken confidence in storing sensitive
information on someone else’s servers.
Second, even the most efficiently tuned
ASP-based, or hosted applications, assume that businesses have
reliable, high-speed Internet access. For a while, DSL-based
Internet access seemed to be the crucial catalyst for small
businesses to warm up to the ASP way of doing things. DSL was supposed
to provide reliable, broadband Internet access, at small
business-friendly prices.
Tip:
DSL is short for digital subscriber line, an economical way
of running high-speed telecommunications services over
standard copper telephone wiring.
Importance of DSL to the ASP Industry
However, even those who qualified for DSL,
based on geographical location, grappled with tremendous frustration
and delays while waiting for DSL service to be activated.
In early 2001, as major independent DSL
providers stumbled on extreme financial difficulties and suddenly
shut down, small businesses were left stranded without Internet
access.
As with ASPs, DSL providers’ tremendous startup
costs spiraled out of control faster than revenue growth.
Many expect that the major U.S. telephone
companies will eventually become the dominant players in affordable,
widespread, DSL Internet access.
However, for now, small businesses are forced
either to go back to the Stone Age of dial-up Internet access or
plunk down $500 a month or more for a traditional fractional T1 or
Frame Relay based Internet access account.
Either way, the lack of widespread, affordable,
high-speed Internet access and concerns about data security
on external servers have hampered and will continue to prevent more
extensive adoption of software as a service.
Unless you have some rather exceptional
circumstances, steer clear of rentable software, at least for now.
Application Service Providers ASP Action Items
What kind of Internet access account and
bandwidth does your company contract for?
Does your company currently lease any
applications that run on an Application Service Provider's (ASP)
server?
If so, which applications are being run on
these ASP servers?
How confident are you that your chosen ASP
will be in business 12 months from now? What is your confidence
level based on?
Have you considered renting software from
an ASP in the past? If yes, what initially attracted you to the
concept?
Do you have any reservations about leasing
software as a service?
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