The term xSP was coined in 2000, yet it’s still hard to find a service provider who says “We are an xSP,” asserts Alexis D. Gutzman, author of Unforeseen Circumstances: Strategies and Technologies for Protecting Your Business and Your People in a Less Secure World. “The advent of the xSP is an attempt by the analyst community to put ASP, ISP, and NSP under an umbrella heading so end users can understand them,” she explains. “Instead of focusing on the differences, they can focus on the similarities.” And most people don’t realize the utilitarian function they serve, which makes dealing with a remote service provider a lot less complicated.

According to Gutzman, xSPs are the “ultimate division of labor.” As a company grows, all of its important functions—payroll, computer support, accounting—are delegated to software specialists. “Today, all these functions and many others are available via an xSP,” she explains. “It’s not that software is inherently problematic. It’s just that for most businesses, software is not their business. Running a lean company means sticking to what you do best, which is all the more reason to consider an xSP.”

Advantages of using an xSP
Gutzman touts five advantages of an xSP:

1. Pay for what you use: Transactional costs are easier to budget. Services from xSPs are delivered over the Internet and can also be delivered via satellite to either a Web browser or client software. The client-server model works equally well when the server is in your own data center or in that of the xSP.

2. Rapid implementation: The strongest competitive advantage that xSPs offer is implementation speed, according to Gutzman. “It’s not unusual to find ASPs that offer same-day implementation for services that do not require extensive database sharing—such as real-time or chat software—or same-week implementation for services that keep a copy of your traffic and order databases,” she says.

3. Take advantage of software’s functionality without incurring its full costs: You don’t need the software, just what it produces. You’re not wasting time buying and deploying technology. From a business standpoint, it makes sense to use hosted software in time savings alone.

4. Platform independence: Your company is probably standardized on a platform, which means that if you want to purchase software that runs on a different platform, you don’t have the IT resources to install and run the software, according to Gutzman. But xSP software is usually available from a Web browser, making platform irrelevant.

5. Reduces workload of IT department: Technology, however, shouldn’t have to be a link in the chain. The purchase of software means writing specifications which involves prioritization by a committee to decide whether it’s a corporate imperative. IT does not have to act as a go-between between the department that needs the solution and the solution. “Signing up with an xSP is an easy way to bring on a self-managed team of experts offering the exact services you need,” Gutzman explains. “It makes more sense to have your software-based services hosted by someone who does only that. They already have the expertise in the software and the servers to handle implementation and any problems encountered along the way with the software.”

Disadvantages of using an xSP
1. Security is a top concern. Security could be a problem when data is traveling across the public Internet from the xSP to your business (or from you to the xSP) as well as when the data is being stored by the xSP. “The public Internet threat is mitigated considerably by taking advantage of satellite communication,” explains Gutzman. “The threat to your data while it is stored is another concern. Any company that hosts your data should be willing to undergo a security audit by the same people you hire to perform your own.”

It should be noted, however, that there are different opinions about the issue of security and xSPs. Concern about security is overblown, according to Richard Brock, president and CEO of First Wave Technologies, Inc., a management software provider in Atlanta. “Companies mistakenly assume their data is more secure if they can control and manage their firewalls,” says Brock. “They take great comfort in knowing their own people are safeguarding their information. But that’s dangerous thinking because you’re opening yourself up to all kinds of problems. The truth is the average company doesn’t have the wherewithal to secure their data.” But an outsourced service provider typically has highly trained security professionals and the technology to manage all their clients’ data, according to Brock. “And, most important, they have the competence to troubleshoot problems and react to emergencies faster than their customers,” he adds.

2. Cost is more than you realize. Because you’re renting software by the month, you will probably pay more for it in the long run compared to purchasing it outright.

3. xSPs are limited to stand-alone solutions. If you’re implementing a CRM solution and you have data from several functions, then a single marketing metrics xSP, for example, would be inadequate because you wouldn’t be able to tie that data into everything else (sales, marketing, supply chain, etc.). Integration with legacy software can be an insurmountable obstacle to using an xSP. By using an xSP, you are sending data to it or it is intercepting certain data from your Web site. If the xSP provides services that are integrated into other computer systems, you might have a problem integrating the two systems.

Best practices for xSP use
According to Gutzman, choosing an xSP largely rests on determining the services you need. For example:

  • Service level agreements (SLAs): Most xSPs are willing to guarantee 99.9 percent uptime because that means they can still be down almost 11 minutes per week.
  • Easy out: A compelling reason for using an xSP is mobility. You should not have to commit to more than 90 days, although it is negotiable. The majority of SLAs have 30-day out clauses.
  • Super-thin client: You won’t need special client software to access an xSP. Web browser use is second nature to an IT manager. It means training and implementation costs will be lower.

Do you use an xSP?

What do you see as the advantages/disadvantages of using an xSP? Send us some mail or post a comment.