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Assessing the almighty ASP

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The application service provider (ASP) industry is going through some big changes. A number of ASPs are consolidating, and several—including a few heavy hitters—are shutting down. During this period of adjustment, current and potential ASP customers are raising some pressing questions about the ASP model and ASP-related services. If you are one of them, you've come to the right place for answers.

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The ABCs of ASPs
Not since the chicken versus the egg quandary has there been a more perplexing question than: "What is an ASP?" Like the dot coms (now known as “dot bombs”) before them, everyone is now touting their Internet-enabled offerings as the next ASP venture. Of course, this phenomenon is happening at the same time that Gartner (and others) are predicting that more than half of these ASPs will be out of business by the end of 2001.

Before trying to define and segment the types of ASP players, we need to have a set of qualifying characteristics. We find it helpful to evaluate and subdivide companies in this space by defining where they live in the value chain.

We define the hosted services value chain as the complete set of functions required to deliver an application from a hosting center to a consumer. Let’s look at each of these services in detail.
  • Internet connectivity: This refers to high-speed, redundant, manageable, and reliable connections to the Internet that are used not only for outbound connections from the application servers but also to allow Web connectivity and tunneled connections (PPTP or IPSEC) by trusted users.
  • Data center: In order to be a real player in the ASP industry, a company must have a hardened data center facility that can provide the three Ps (ping, power, and pipe) in a fully redundant and secure manner.
  • Hardware infrastructure: Inside the data center, there are typically hundreds of cabinets or cages that contain companies’ servers, routers, switches, and other hardware devices that make up the hosted configuration.
  • Operating systems management: Once the hardware’s in place, the operating systems have to be initially installed and configured, as well as efficiently managed and provisioned on an ongoing basis. Many companies have developed intellectual property that makes these tasks easier and more cost-effective.
  • Applications management: Most people assume that the ongoing management of the applications is the primary function of the ASP. In fact, many ASPs still do a majority of the actual application provisioning and management manually. Efficient application management is one of the keys to an ASP's ability to offer its services profitably.
  • Sales organization: Not all ASPs are attempting to build their own sales force. Many choose partnering arrangements with consultants or value-added resellers (VARs) and focus instead solely on service delivery.
  • Business processes: ASPs or their partners ultimately add value for customers, not by delivering hosted applications, but by delivering the business processes that utilize the applications properly.
  • Last-mile connectivity: In addition to remote accessibility provided by the Internet connectivity layer, many customers also require full-time, high-speed access provided by dedicated Frame Relay, T1, or DSL technology.
  • On-site equipment: The final layer in the ASP value chain is the end device used to access the applications. Some ASPs want to own or manage the end-point equipment, whereas others are satisfied to have another company or a VAR assume the responsibility.

These are the different layers of the total ASP value chain. Next week, we’ll break down the different types of ASPs by their value-chain participation and look at which type of company may be right for your hosted services needs.
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