Developer

Should you outsource your applications?

Will your next software purchase be through an application service provider? Hal Glatzer takes a look at what could be the next big quantum leap in information technology.


IT managers need to oversee an increasingly diverse set of applications among users who are more and more likely to be geographically dispersed. Yet someone still needs to acquire—or develop—those complex apps, and support them wherever they're used. Resolving this dilemma could involve outsourcing applications.

This concept isn't new. There have been service-bureaus as long has there have been commercial computers. But now the Internet, corporate intranets, and comparatively secure "virtual private networks" are available as conduits for file interchange. Telecom costs generally are low now, too, and will keep falling as more competitors arrive. So support over long distances isn't expensive any more either. And with application GUIs looking more and more like browsers, some complex apps are actually getting easier to use.

What does ASP mean to me?
IT departments may be ready to outsource application management by turning to an Application Service Provider (ASP). "An ASP manages and delivers application capabilities to multiple entities from data centers across a WAN." That's the formal definition put forward by Traver Gruen-Kennedy, director of advanced business development at Citrix Systems, and chairman of the new ASP Consortium , an industry forum that was launched in May 1999.

Gruen-Kennedy believes that ASPs offer customers a new model for their applications' total cost-of-ownership. "Cost-of-ownership used to revolve around the client-server/site-license model, with fees per server and per PC or per workstation," he said. "But with an ASP, with the apps residing on a remote server and supported there, it moves the total cost of ownership outside. The enterprise could save 50 percent or more of the cost of buying an application and supporting it, compared to traditional client-server computing.

"Also, you can deploy a new or upgraded application without having to touch the desktops—that could be a huge advantage," said Gruen-Kennedy. "ASP service gives you access to the latest applications, the latest versions, and yet it lets you pay as you go. And because you're paying as you go, there aren't any capital-intensive investments. ASP service comes out of your operating budget, not your capital budget."

He did acknowledge, however, that "ASP is not a cure-all, and it's not an appropriate model for all applications. But enterprise managers should take a close look at their apps, and at the locations where those apps are used. If there are independent work-groups, and lots of users in branch offices, or there are many more mobile workers or telecommuters than ever before, an ASP might be the most appropriate way to host those apps."

Who owns the infrastructure?
ASPs mainly address the needs of smaller or midsize companies that don't have the financial resources, or the in-house staff and skill-level to develop and support applications. Asha May, an applications outsourcing analyst in the Gartner Group, feels that "ASP is a viable concept, and represents a viable market with many opportunities yet to come. But it's still nascent. Users need to know that, whatever else this new model entails, the concept is essentially 'outsourcing,' although some ASPs are developing a 'rental' model too."

 So far, according to May, there are two basic models for ASP activities. Some have built their own infrastructure—their own data centers. But most have chosen to partner with another company to operate and maintain the infrastructure/data center. So, in the big picture, a software vendor may partner with an ASP and with a separate infrastructure provider; or a software vendor may partner with an ASP that has its infrastructure capabilities in house.

"This is new," she said, "even to people who've been in the industry for 20 years. So I believe that, as the market opportunities grow, there will probably be a consolidation among the ASP companies that have found their space in the market. But I don't think that any one model will win out, or that only one company will be left standing. That wouldn't be good for the market or for the user community. We still need options.

What happens to site licenses?
What's also not clear, is what changes ASPs will impose on traditional practices. "Software vendors are grappling with licensing issues now, said Gruen-Kennedy. "For them, site licensing has always been their bread and butter. They need to figure out how to play in the new market.

"For example, ASPs may offer a rental option now. A software vendor might sell a license to an ASP, and the ASP could rent out access to it. In that case, one price—per-seat and per-month together—would cover everything. Compare that," he said, "with buying a whole site-license up front and paying a monthly fee for services.

"Alternatively, a software vendor could disseminate the rental process through the ASP, but still own the license. And some companies will still want to own the customer relationship. So they'll continue to sell the license to the customer; and if the customer wants the 'hosting' model—the ASP model—then the vendor will simply refer them to one of its ASP partners."

May also believes that the site-licensing model will change. "Where you used to have only a per-seat license fee, or a per-device license that you could use at work, but couldn't use on a machine you take home with you, you can now have some sort of 'concurrent-use' license under an ASP model. That may be good news for the software industry, because it will allow for greater distribution; and it should be good news for users, since they may need a package only for one moment in time, while they don't want or need to buy it.

"You might also see innovative versions of site-licenses emerge," she continued. "Suppose you have a global company with 50,000 employees all over the world. You could obtain a 10,000-user site license, and at any given time, one-fifth of your workforce could be using it. In effect, as the sun came up around the planet, the license would be transferred automatically to the next group of users coming in to work.

"Overall," said May, "ASPs are good news. Software companies can broaden their audience, and actually increase the rate at which they add features or upgrades, because they wouldn't have to wait for users to upgrade their hardware. Once the software resides on the ASP's server, after all, it's available to all the users immediately."

Is it secure?
When it comes to security, there are also unresolved issues that ASPs, their software partners and their prospective customers all have to face. Many of these issues concern the technology itself, and others concern security methodology. The public, dial-up Internet is almost certainly not the vehicle of choice for data interchange. Rather, intranets and virtual private networks are preferred. Managers, not only in large enterprises but in medium and small businesses too, all want the highest level of service from their telecom providers. So dedicated networks—although not necessarily private phone lines—will proliferate, with infrastructures separate from the components of the public Internet. However, those intranets and virtual private networks have to be managed in such a way as to maximize not only security but also quality-of-service, bandwidth and latency.

"Some ASPs have engaged the 'big-five' accounting firms to help them develop security methodology for managing data," May noted, "since what's on their servers will be aggregated across several customers. Everybody is concerned about data integrity, and there are big issues about that when your applications are being managed off-site. It's not about 'who owns the data?' It's a question of maintaining the integrity of the data."

ASPs are working to solve those big problems, as well as the smaller, less-obvious problems that might keep customers on edge. "The ASPs need to meet those challenges to ensure that their services are provided seamlessly to their customers," said Gruen-Kennedy. "For example, they'll want to make sure that there's just one contact person—customers don't want to page through voice-mail to find somebody to talk to."

But he's confident that prospective customers will see the advantages of outsourcing applications. "If a large company has internal IT resources," he explained, "they can deploy their IT staff for more strategic purposes than managing a database or other applications. A smaller company that hasn't got a big IT staff doesn't have to find and hire talent to do those jobs. And any company, no matter how large or small, doesn't have to allocate capital toward building and supporting their own apps."
What do you think of ASP? Is it a viable alternative for your organization? Please post your comments below or send me a note .

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