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What to do when your ASP goes bust

Application Service Providers such as Pandesic and Red Gorilla, once considered powerful players in the ASP market, are out of business. This article offers tips on how to stay afloat when your ASP goes under.


Critics of the ASP industry are not surprised that some ASPs are going belly-up. But what is surprising is that some of the failed ASPs were thought to be solid players.
  • Last year, ASP behemoth Pandesic shut down. Pandesic is based in Sunnyvale, CA, and was born of the seemingly perfect corporate marriage between ERP software pioneer SAP and Intel Corporation. Pandesic rented e-commerce applications to over 100 business-to-consumer (B2C) retailers. Despite its pedigree, however, Pandesic closed its operation last July, laying off most of the company’s 400 employees.
  • Red Gorilla was another well-funded, California-based ASP that folded. Its customers suddenly found themselves unable to access the Web site and its business applications for a week before the company made a formal announcement that it will close in February.

According to predictions from Gartner, 60 percent of existing ASP players will close by the end of this year.

“The whole ASP sector, along with Internet companies, is down,” said Philip Ladouceur, chairman and chief executive officer of FutureLink, a CA-based ASP that recently closed six of its offices and laid off 75 employees.

In this article, ASP customers describe the steps they took when their ASP was shut down, and an IT consultant offers advice on precautions you should take to protect your enterprise before your ASP goes under.

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Create an emergency plan
Even if your ASP seems healthy, you should be prepared if your ASP closes or fails to perform up to expectations. According to Andy Palkhiwala, a technical consultant for small to midsized businesses, you should create a written blueprint for emergencies in advance. Even if your Service Level Agreement (SLA) is favorable, Palkhiwala advocates taking additional precautions so you can take action at the first sign of trouble. Here are a few items to include in your blueprint:
  • To create the emergency plan, evaluate the extent to which your business will depend on the ASP.
  • Identify the possible back-up options for each part of the business that is relying on the ASP.
  • Determine whether your business can sustain itself through internal operations in the event of ASP downtime. This may involve maintaining a back-up server on your own office premises with software similar to that provided by the ASP.
  • Collect the information needed to inform your customers, clients, or anyone who may be potentially affected by the downtime or closure. If necessary, provide customers and clients with an alternate way to contact you and offer them another method of accessing your products or services.

Find out the specifics
If you don’t already have an ASP, you should ask specific questions during the selection process, said Sherri Josen, spokesperson for AllBusiness, one of Red Gorilla’s former customers. Here are some of the questions you should ask:
  • Does the ASP have a back-up option available to you in the event of technical or other failures?
  • Does the ASP have a transition plan in the event that the service closes its doors? While many companies check to see whether the ASP has adequate technical back up in the event of a failure, it’s not as common for potential clients to ask about what happens when an ASP goes out of business.
  • Will you have any ongoing rights to use ASP-owned or licensed technology?
  • Will the service provider agree to pay any wind-down costs that you may incur as a result of the termination of ASP services? Such costs include the cost of migration to another provider or the disposal or replacement of hardware and software.

Former customers pick up the pieces
Susan Daniher, VP of Marketing at Express.com, a former customer of Pandesic, said the California-based online entertainment store created a team of technical and operations personnel to evaluate other options, both front-end and back-end.

After evaluating over 30 solutions, the pick of the list was presented to the executive team “with ratings, pros and cons, as well as examples of companies these solutions were servicing,” said Daniher.

Daniher had advice for other companies who find themselves caught unaware by the sudden demise of an ASP.

“Create a team of personnel that can effectively evaluate new solutions based on their current role in the company—someone from technology development, IT, operations, and customer service. Get your management team to agree upon the needs of the company up front before prospecting for new solutions,” she said.

Daniher does not recommend hiring outside consultants to help you find a new solution. “Internal employees know what's best for the company and know the plusses and minuses of your current e-business solution.”

Limit your exposure to risk
If possible, don’t let your entire business revolve around the ASP. Josen agrees with many experts who advocate that you should only allow certain segments of your business to depend on the services provided by the ASP. If you avoid outsourcing mission-critical applications, your entire business won’t have to go down if your ASP fails.

Above all, says Josen, “It is important to understand that ASPs are merely meant to make a business more efficient and can never be a replacement for your business operations.”
Does the failure of two big ASPs mean that the ASP trend is dying? Or do the cost advantages of an ASP mean that the industry will eventually flourish? Post a comment to this article or send us an e-mail.

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