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Avoiding the bite of the ASP

The current hot trend in managing data and software applications is the use of Application Service Providers or ASP Those who have been in the business world for at least 15 years or more probably recognize the concept behind using as ASP as being reminiscently familiar.

In its most simplistic terms, an ASP works just like the hard wired service bureaus many companies used in the late 1970's and through the mid 1980's as they first entered the computer age for data management and retrieval. Those service bureaus worked as follows:

You keystroked your data into a dumb terminal that was hardwired to a service bureau. The service bureau could be located anywhere off your premises and your data was transmitted via a phone line tied from your location to that of the service bureau. The programs that stored and allowed manipulation of the data in the form of reports, mailing labels, and so on were housed on the computers of the service bureau.

Over the next 20 years, the cost of hardware and software became more affordable and the storage and computing power of the computers themselves increased so much that virtually every business could own its own computers and software to run its business.

Today, it is deja vu all over again as the concept behind an ASP is that your data and the programs needed to manipulate that data are stored on someone else's hardware, using someone else's software and you access it through the internet.

The economic benefits of using an ASP and the old service bureau are the same. You are essentially renting computer capacity rather than buying it so the capital outlay isn't as great. It isn't your responsibility to continually upgrade software as the latest versions hit the marketplace. ASPs provide even greater benefits than the old service bureaus because coupled with wireless technology and the internet, you can access your data from anywhere in the world.

But all is not rosy in the ASP world. John Dvorak writes in the November 27, 2000 issue of Forbes about the recent troubling saga of a San Francisco based ASP called Red Gorilla which provided online billing and other services to lawyers and other professionals. That company closed its doors in October with no warning and no contingency plan for its customers to retrieve their data.

He points out that "given the difficulties cash-strapped ASPs are having raising second and third round financing, this incident may very well become a trend." His opinion is not an isolated one. CEO of I-Drive.com, Jeff Bonforte, whose company provides free disk storage space over the Internet believes that the 30 or so firms currently providing Web-based disk storage will shake out to only three big players. Dvorak agrees, saying "projecting a 10 to 1 fallout ratio for all ASP categories, including site builders, finance sites and other on-line applications, is not unreasonable." Audrey Apfel, research director at technology consultancy Gartner, predicted that 60 percent of Application Service Providers would disappear over the next few years.

According to an ASP Customer Demand Survey conducted by Information Technology Association of America and four magazines, vendor stability and survival was the number one worry of respondents.

So it is important that you do more than your customary due diligence. Because funding of the ASP is so crucial to its survival and thus to your use of your business' data on an ongoing basis, check out who is funding the company and what the management team is like. And even then, be careful. Pandesic LLC, an ASP shut down despite having Intel and German software giant SAP as partners.

Choosing an ASP is much like the process you should be following if you were going to host the hardware and software programs yourself. Decide what applications you need - that is choose the software first. Then find an ASP who can handle it. According to Steven Silver, director of eBusiness at Nissan North America, Inc., pick a provider that's already experienced in hosting the software you plan to use. "They have already built the hooks, and that makes integration less of a nightmare for both them and the client." Silver advises to actually talk to the maker of the application.

Negotiating the agreement with the ASP may be sole tool you have to provide yourself at least some protection of your data and the ongoing operation of your business.

Pay particular attention to the licensing agreement or lease you are asked to sign with the ASP And be careful - the initial agreement you sign may very well allow for the it to be changed solely by the ASP and without notice.

Watch out for clauses that hold the ASP harmless for any losses suffered by you, the customer. Beware of the anti-spamming provisions. While you certainly have no intention of spamming, even unproven accusations of spamming may kick you and your email users off the service for a period of time while you attempt to resolve the dispute.

Not only should you insist upon a backup of your data, but you need to understand how the software of the ASP stores and manipulates that data. Merely being able to have your data in raw form when the ASP closes its doors or you decide to go elsewhere won't guarantee that you can continue to operate in the manner you, your staff and your clients have become accustomed. Determine whether the data can be used with any other online service or with a stand-alone package. Many of the ASPs have developed proprietary systems and the servers that run them may use proprietary scripts that could be totally useless should you need to move your data.

So be certain to negotiate how you would effect re-hosting your data and applications in house or moving them to another ASP Consider who has title to the application and the source code. If the code was customized for your operation insist on retaining title.

Another consideration will be technical service. Everyone offers "24/7". However, make certain that the technician who is on duty at 3 a.m. will be as well trained and knowledgeable as the one who is there at 3 p.m. Remember, you may have employees accessing your data and applications from throughout the world at any time of day or night.

The more specific you can be about what services will be provided and the scope of implementation the better you will be. You certainly don't want to be negotiating or arguing about whether the ASP was going to handle a specific function particularly if your entire operation could be brought to a standstill until it is resolved.

Finally, make sure that the ASP has the resources to meet your enhanced needs as your business grows or as you want to provide more ecommerce capabilities.