Asp ecommerce software

1. INTRODUCTION

According to Lin & Benjamin (2000), information technologies and information systems (IS) are major contributors to productivity and competitive edge and, in particular, enablers of eCommerce. Their line of thinking continues that of Brynjolfsson (1993) and Brynjolfsson & Hitt (1998) who were among the first to attribute the growth of the American economy during the last decade to massive technology investments and to productive uses of technology. The question is, however, whether the ability of enterprises to use technology productively and competitively depends on size. In this paper we contend that, throughout the history of computing, the effects of enterprise size on the ability of organizations to acquire technology were related to the evolution of the IS renter from the old service bureau to the emerging Application Service Provider (ASP). One possible way for SMEs to overcome the hardships in IT implementation is to use ASPs.

For the last two years, two Israeli Independent Software Vendors (ISVs), Silverbyte and NetPos, who operate in the hospitality industry, are offering their customers an option to rent and host the application on servers located at the vendor's server-farm, instead of buying and installing it locally. Both companies report that many smaller organizations find the idea appealing, and they manage to acquire new customers at a satisfactory rate. In this paper, we will examine these two cases, describing the benefits to the customer organizations. We acknowledge that it is far too early to assess what the future may hold for ASPs and how far-reaching the implications of ASP-to-SME eRental could be for IS delivery and management in the global economy. Yet, it is possible to focus in this paper on lessons that can be learned from two case studies of ASP-to-- SME eRental. Further research questions are also derived from the study, and are outlined in the last section of the paper.

Back in the early days of computing, for the most part, only large enterprises could afford to buy and maintain the hardware and software required for IS implementation in-house. However, most Small or Medium-sized Enterprises (SMEs), to avoid the high expense of buying and maintaining an IS infrastructure, resorted to IS rental from service bureaus. By the late eighties, when technology became much more cost effective, following massive decreases in the cost, size, and complexity of computers, SMEs found IS infrastructures more affordable, the demand for IS rental diminished, and most service bureaus had disappeared (Halperin, 2000).

Surprisingly, even though the cost-performance ratio for technology continues to improve, IS rental is once again in demand in the form of IS eRental via the Internet from ASPs, due to growing complexity of IT infrastructure and applications.

This newly emerging concept of commerce is a special case of Business-to-Business eCommerce, where the product is an IS application and the business units engaged in commerce are an enterprise and an ASP. SMEs, much like the situation in earlier days of computing, find it difficult and hardly affordable to own, maintain, and manage around the clock, state-of-the-art IS infrastructures required for competition in the Internet-based global economy. Thus, it was assumed by both market analysts and vendors that SMEs are potential customers of ASPs (IDC 1999, Goldman-Sachs 1999).

Although the exact definition of SMEs varies, there is quite an agreement about the difficulties that SMEs confront: "Limited people resources. Budgets stretched razor thin. A constant barrage of competitive threats" (www.sap.com). These limitations make it difficult for SMEs to meet the demands of the new eBusiness era, which require not only automating front-office and back-office functions, under "always-on" operation regime, but also maintaining application integration within the organization and continuous communication of internal applications with external ones. Until very recently, the IS infrastructures of many SMEs revolved around purchased applications residing on different platforms and using separate databases. A survey conducted by the U.S. National Institute of Standards and Technology found that:

"Recent studies and focus groups suggest that while small and medium size manufacturing enterprises (SMEs) are investing large amounts of capital in IT consulting services, they're also purchasing piecemeal applications that are inappropriately scaled for their businesses. To compound the problem, they're not training their staffs appropriately to use the IT solutions in which they've just invested. Many IT hardware and software solutions sit idle, are used inappropriately, or are not used to their maximum advantage". (www.nist.org: "Verification of Information Technology (IT) Solutions for Small and Medium Size Manufacturing Enterprises (SMEs)")

Since, for an eBusiness strategy, well integrated IS infrastructures must be up and running 7 days a week, 24 hours a day, SMEs find their fragmented IS infrastructures too expensive to own and maintain and too complex to manage. It is thus not surprising that ASPs have begun to offer the eRental business concept to SMEs (Goodwin, 2000).

The customers of the ASPs in these two cases are members of the hospitality industry in Israel which, because of their relatively small size and like their counterparts elsewhere in the world, can hardly afford the cost of owning the state-of-the-art IS infrastructure required for eBusiness in the Internet era.

To prepare the background for the case studies, the new IS eRental concept is reviewed, in the next section, and the state of IS in the Israeli hospitality industry is described in the third section, supported by a survey conducted by the authors (Heart et al, 2001).

The fourth and fifth sections contain a brief description of two Israeli software vendors, NetPOS and Silverbyte, that have recently entered the ASP arena by adding an eRental option to their IS offerings. The case details were collected by the authors, through a personal acquaintance with the owners and managers of the vendors. Supportive evidence was gained by visits to customers of Silverbyte and Net-Pos, and by conducting informal interviews and discussions with managers in these organizations.

Finally, the last section contains a discussion of the ASP concept as well as possible research directions on ASP-to-SME eRental in the future.

2. THE NEW IS ERENTAL CONCEPT

The same reasons that had previously led to the emergence of service bureaus have more recently led to the emergence of ASPs as a modern outsourcing concept. A recent report (ASPnews.com, 2000), which describes the forces that are driving the ASP business model, predicts: "Within a few years, users will not want to install applications locally. Instead, they will access the applications they need, on demand, from online providers who will charge them by the second for the precise value of the specific features and resources they choose to use." In the context of this paper, users are SMEs.

Microsoft, the ultimate "off-the-shelf" "boxed" application vendor, in the framework of its "Dot Net" intentions, has recently announced plans to rent applications off the net. Other vendors in the rather young ASP market of over 1,000 ASPs (Heinlein, 2000), which was pioneered in 1998, include Breakaway Solutions (www.breakaway.com), Corio (www.corio.com), Usinternetworking (www.usi.com), Oracle (www.oracle.com), and EDS (http://www.eds.com/ services_offerings/so_os_app_rental.shtml).

According to recent surveys (Brown, 2000; Goering, 2000), ASPs offer a variety of applications including ERP, CRM, project management, data warehousing, and eMail (www. allaboutasp.org). According to IDC (1999), "Worldwide ASP spending will approach $8B in 2004", a 92% compounded annual growth rate. The Yankee Group forecasted in 1999 that the ASP market size would be above $14B by 2004. Thus, a consensus regarding ASP market projections has yet to be reached, but all predictions agree that it is about to be a large market.

ASPs require a broad range of competencies, including skills and expertise from the services, networking, and application worlds. Figure 1 illustrates the various skill sets required by those firms seeking to be an ASP (source: IDC, 1999).

Considering the various skills required for ASP, various players are entering the market, either as "pure players" (like Silverbyte and Net-Pos described later), or as partners of other vendors, to complement lacking competencies. Thus, in early days, IBM has partnered with IT&T as the supplier of WAN infrastructure and connectivity. Figure 2 describes the various market players (source: IDC, 1999).