If your company is even casually considering outsourcing to an application service provider (ASP), you’ve probably thought about the customization issue. No one wants an “app on tap,” but can you afford to pay for customization and integration with your in-house software?

If yours is a small or midsize operation, the answer probably would have been “No” in the past. But insiders say ASPs are offering more customization than ever before, and customers have an increasing number of options. Here’s what the experts said.

What is true customization?
When it comes to ASPs, customization can mean a variety of things. Because application integration requirements tend to vary significantly from customer to customer, there’s almost always some level of customization involved.

Although ASPs often tout customized applications, true customization happens only when actual changes to application code are required. While an out-of-the-box application requires configuration to a client’s needs, this is a meta-driven, non-programming task.

Frequent criticisms have been directed at the ASP model because, in general, it offers only an individually configured, vanilla solution. Analysts point out, however, that the more customization the provider offers, the lower its profit margin.

“The fine line ASPs have to walk is how much customization do you do in order to meet the requirements of the customer, and when do you do too much customization and your ASP one-to-many business model falls apart,” said Meredith Whalen, a research analyst with the Framingham, MA-based International Data Corporation (IDC). “When you start to do too much customization, you start to look like a traditional service firm that does application development and integration work.

“The ASP is a different business model in that you’re trying to take a standard off-the-shelf package and say, ‘We’re going to do very little customization here because it will become cost prohibitive to the customer,’” Whalen continued. “I think it still remains an open answer where that line will be drawn. Is 5 percent, 10 percent customization okay? That’s where a lot of ASPs are experimenting right now.”

Along with customization, ASPs will have to provide integration in order to succeed with customers. Because most companies that contract with ASPs won’t outsource their entire suite of applications—at least not right away—it will take a higher level of service to ensure that the in-house apps work with those that are outsourced. Fortunately, it may get easier for ASPs to offer integration, as enterprise application integration technologies such as XML and Microsoft’s BizTalk become more readily available.

You get what you pay for
Though it’s comforting for ASP customers to know they can get more for their money, they’ll definitely be spending more of it. Customization and integration are expensive—not because of the cost to build applications—but because of the long-term costs of maintaining the customized applications. ASPs provide a fixed contract, and all costs, including upgrades to customized apps, are built into that contract.

From an economical standpoint, therefore, it may not be in your best interest to ask for a high level of customization. You might find an ASP that offers applications that are so robust they don’t require a great deal of customization. On the other hand, if your application needs are straightforward, and you don’t anticipate extensive customization, a plug-and-play ASP may suit you.

Depending on the level of customization you want, your ASP may need to know enough about your business strategies and processes to help translate them into software modifications. Jim Dybalski, senior vice president and CTO of LoanCity.com—an online marketplace for mortgage brokers and lenders—oversaw the implementation of Seibel Sys4 and PeopleSoft Financials by Corio, a Redwood City, CA-based ASP. He said it’s important for customers to be specific up front about the level of customization needed.

“No one will live with a plain vanilla application,” he said. “Everyone thinks they’re special and need customization. The lesson I learned is to set clear expectations of what you want and when you want it done.”

Customized offerings on the rise
Due to customer demand and competition, ASPs will work hard to offer more customization and maximize flexibility in their offerings. For instance, J.D. Edwards will soon offer its Ideas to Action framework, which employs user-defined parameters to evolve the application suites after implementation. And Corio is building a layer on top of its ISV platforms to hold additional desired functions without having to “break” the underlying ISV code. Digex, GTE, IBM, and UUNET are building similar customization offerings.

In addition, certain vertical industries will see applications tailored for them.

Intelligroup, an Edison, NJ-based firm that offers a full menu of e-business solutions, has created a suite for the pharmaceuticals industry that includes Food and Drug Administration approval software, chargeback software, and other functions specific to pharmaceutical manufacturing.

“I can take that to the 1,900 other pharmaceutical manufacturers and it’s going to look like a customized solution,” said Jake Standifird, director of myADVISOR Services with Intelligroup’s ASP Solutions Group. “We offer about 10 percent customization on top of that.”

Standifird said regardless of the industry, every ASP customer will have varying needs and should expect some level of customization.

“When you get into enterprise applications, the industries are very different in the way they do business and what their requirements are,” he said. “You can’t offer one-size-fits-all applications. I’ve yet to see my first installation that was vanilla that didn’t need any customization.”
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