ASPs and large companies make good partners

Although large companies traditionally haven't worked with application service providers, experts say it's only a matter of time before they start forming partnerships. Read what IT pros in large IT departments should know.

Large organizations in need of complex applications and services often look to outside sources for help with tough jobs. They hire consultants, systems integrators, and research analysts to help them get the job done.

So why don’t they hire application service providers?

Experts say it’s just a matter of time before they do. And the IT pros who determine which applications to outsource will want to keep a close watch on the numerous successes that big companies have achieved by partnering with ASPs.

ASPs lack big customers—for the time being
In most cases, the large enterprise has been overlooked as a candidate for application service provision.

One reason is that with the ASP one-to-many business model, most providers have been forced to limit the amount of customization they offer. This cookie-cutter approach rarely appeals to big companies, which traditionally demand that applications be tailored to their unique needs.

In addition, customers with more than 500 seats present a profitability challenge to ASPs. Large companies tend to demand volume discounts, which the smaller and start-up ASPs usually can’t provide without sacrificing their own profits.

Another ASP obstacle for big companies is that they generally have large client/server applications linked to legacy systems and a sizeable number of users within the firewall. In such cases, it’s nearly impossible for ASPs to successfully host and deliver applications without constant problems.

And security has long been the issue that has kept the large enterprise from using ASPs. Certain industries, such as health care, financials, and personnel services are often subject to confidentiality laws that mandate keeping data on site. Thus, storing information with the provider is out of the question.

However, International Data Corporation (IDC), a Framingham, MA-based IT consultancy, asserts that large companies aren’t buying ASP service because it hasn’t been made available to them.

“The reality of the market today is that small and medium-size companies are purchasing ASP service,” said Meredith McCarty Whalen, an IDC analyst. “I think that’s a function of the fact that ASPs are targeting them. They’re not going full court press to the large companies because ASPs don’t necessarily recognize that as an opportunity.”

Viability of application outsourcing for large companies
All of that is changing. In fact, the large enterprise may eventually be the prime target for ASPs. Although the concept of application service provision is new for most big corporations, outsourcing their non-core competencies is not. As IDC points out, large companies typically spend a greater proportion of their budget on outsourcing, and they’re more likely than the small or midsize company to consider outsourcing as an option.

Application hosting is also ideal for low-maintenance, thin-client systems in organizations dealing with small branch offices. That’s why banks and other financial institutions might find ASPs to be a viable option. As for the data storage question, experts say customers are comfortable storing their money in a bank, so it may be just a matter of time before the IT industry grows accustomed to the idea of storing data at a remote location.

Although an ASP might be less likely to supply core business functions to a large corporation than to a small business, ASPs have the potential to serve as a key component for departments within large corporations, such as accounting or human resources. The technology purchased may be pivotal to the specific department that’s buying it. In fact, ASP vendors say there’s a tendency for non-IT staff to drive the application rental decision. That’s especially true for departments that already outsource a large portion of their functions.

The front-running large customers will probably see added benefits for outsourcing to an ASP. Because they’ve been willing to serve as guinea pigs and anchor tenants for vendors, many are receiving discounts or added services that wouldn’t have otherwise been available. In addition, their experience will bring peers, research analysts, and consultants looking for answers—many of whom will be willing to pay for that information.

A-S-P spells success for big clients
The success stories of big companies and their ASP partners point to solutions such as combating IT talent shortages, avoiding security headaches, eliminating maintenance hassles, and reducing deployment time for new applications.

The Irex Corporation, a Lancaster, PA-based distributor and fabricator of mechanical insulation and architectural and acoustical products, hired World Technology Services—a Seattle-based ASP—to connect 500 of its employees to J.D. Edwards software.

When asked what made them consider the ASP option, Irex’s director of enterprise software, Betsy Beach, said, “The catalyst for us was we’d run out of resources. We lost our systems administrator at a time when our AS/400 was going up. The big picture for a large company is, ‘Yes, we can look at outsourcing,' but because IT has normally been maintained in house, we really opened our eyes to that. So we looked at what was available out there.”

Other large enterprises have discovered the advantages that ASPs can offer to fulfill their diverse needs. The TriZetto Group, an ASP for the vertical healthcare industry, is providing Raintree Systems' practice management software to several medical practices of Kelson Pediatric Partners, a large pediatric practice management company. Services include help desk support, connectivity, network monitoring, infrastructure support, installation, and training.

New Jersey-headquartered MarketSource, the nation’s largest full-service marketing company, contracted with Cotelligent—a provider of IT consulting and ASP outsourcing services—to implement a hosted, browser-based field sales management system for its field services division. The Cotelligent system has given MarketSource new flexibility and speed in sharing merchandising, product launch, and other store-based information with its consumer goods manufacturer business partners.

As IDC’s Whalen notes, there is a growing trend among large companies to be the next ASP success story. She recommends that managers in large IT departments keep the ASP option in mind in the months to come.

“When we’ve done demand-side studies in which we ask customers whether they’d buy ASP service, we keep seeing that the large companies are showing an interest in this,” she said. “Going forward, you’ll see larger companies buying ASP service, although they may be more interested in the collaborative applications, the new emerging applications, where they don’t have someone on staff with those capabilities.”
Do you work for a large company that’s considering a contract with an application service provider? Do you believe ASPs are a viable option for big customers? Give us your thoughts by posting a comment below. If you'd like to share an idea for an article, drop us a note.

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