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Here they are: the benefits, the concerns, the means to fit an ASP within overall IT strategy, and the way to select and evaluate an ASP's performance--to ultimately save money and gain greater business application functionality.

WITH ROOTS IN TIMESHARING, outsourcing and packaged software, the application service provider (ASP) model is revolutionizing the way companies acquire and deploy business functionality.

First appearing in the late 1990s, the ASP model offers application functionality along with the necessary computing, networking and people support--all for rent. While the ASP model has much in common with the timesharing approaches used since the dawn of the computer era, the reasons for its use vastly differ. In the past, companies timeshared to reduce the high cost of hardware ownership, but now companies are in the market for high-quality business applications without the cost and distraction of supporting those applications and their technology infrastructure, including skilled staff.

Several factors led to development of the ASP model: High-speed networking, combined with increasingly powerful and inexpensive hardware capacity, provided an infrastructure that supported remote application deployment. High-quality packaged software functionality enabled ASPs to offer powerful solutions while obtaining economies of scale in support and deployment. The cost and associated difficulties of hiring and retaining the skilled staff needed to support complex, rapidly changing technologies gave IT and business buyers good reason to consider alternate means of meeting their functional requirements. The result is a new business model for solution providers and an attractive, cost-effective method of obtaining functionality for buyers.

This article explores the ASP model from a prospective buyer's point of view. It begins with a brief overview of the ASP model and its options. It examines the benefits of the ASP model and describes when that model is most appropriate. The latter half of the article provides tips on how to begin an ASP engagement, starting with how to select the right ASP for your needs.

What Is an ASP?

Despite its surge of media attention, ASP is still a confusing term to many potential buyers. This confusion is not surprising given the range of solution providers and the variety of products and services they offer. The ITAA, an industry trade association, defines an ASP as "any company that offers specific business applications on a subscription basis via the Internet or other networked arrangement." This description focuses on the delivery method and encompasses a broad range of possible suppliers.

Perhaps a way to understand the ASP model is to consider it simply as an option for acquiring and supporting application functionality. Rather than purchasing a given application, such as an ERP package, and operating and supporting it internally, with an ASP a buyer can rent the application, along with hardware and software support. By buying ASP services on a subscription basis--typically by number of users or transaction volumes--a company can purchase only as much service as it actually needs and can save capital for other uses.

Think of the ASP model as an interesting combination of software packages, outsourcing, timesharing, and creative financing. The best way to view the ASP market is by the available types of applications, services, and ASPs that offer those services.

ASP APPLICATION TYPES

The ASP model can support virtually any application software package and many system packages. Many types of packages are already available, and the number increases daily. At one end of the spectrum is Web site hosting, where the ASP provides the operating software and hardware to support a customer-developed Web site. At the opposite end are the large integrated software packages offered by companies such as PeopleSoft, Oracle, ACCPAC (CA) and SAP. Between these extremes are standard PC packages, such as Microsoft Office, and a variety of vertical-market software packages supporting most every industry, from stock brokerages to dental practices. If a package can be configured to allow offsite delivery and support, it can be offered through the ASP model. The model can even support IT system functions such as data. For example, Storage Technology, Waltham, Mass., is creating a new industry by using the ASP model to offer customers access to vast quantities of disk storage, along with the software and service s to manage this storage.

ASP SERVICE TYPES

ASPs support their software offerings with a wide array of operational, customer support, and consulting services. These services fall into two categories. The first provides the computing and communications infrastructures within which applications operate. The second provides the associated "people" services to support the applications. The ASP may provide these services directly or through partnerships.

People services vary by application and ASP types, but they typically include help desk support, application monitoring, hardware installation, software upgrades, and operational services such as capacity planning, and backup and recovery. For more complex applications, ASPs offer some level of customization such as tailoring applications to company requirements or building interfaces to in-house applications. However, to gain economies of scale in operations and support, most ASPs attempt to limit customization.

UNDERSTANDING ASPS

Perhaps most confusing is trying to understand ASPs themselves. Given the scale and complexity of an end-to-end ASP offering, no single company can supply all of its components and services. Thus, most ASP offerings are assembled through a series of partnerships, relationships, and joint ventures.

The same company may appear in several ASP arrangements, each time occupying a different role. For example, ASP delivery of PeopleSoft products can be obtained through USinternetworking, Corio, or even PeopleSoft itself. The best way to understand the ASPs is to categorize them according to the components they provide, and those provided through partnerships.

* "Pure-Play" ASPs

These companies were formed specifically to serve the ASP market and operate by integrating product and service components from other sources. They tend to market solutions, such as ERP and accounting packages, that can be used by many different industries. Although some are starting to buy application software companies, most pure-play ASPs host third-party applications using their own data centers and provide connectivity through partnerships with companies such as QWest. Examples of pure-play ASPs include USinternetworking, Corio, and Breakaway Solutions.

* Independent Software Vendors (ISVs)/Partners

ISVs develop and sell software packages. Virtually every ISV has entered or is considering entering the ASP market in some form. These companies view ASP as a new channel for selling their software. Some, such as ACCPAC, are content to sell their software through pure-play ASPs, while others, such as Oracle, avoid the middleman by entering the ASP market directly. IIS and Tarantella are ISVs.

* Internet Service Providers (ISPs)

ISPs provide access to the Internet and host Web sites. These vendors provide and manage the data center infrastructures and communications networks on which the ASP applications operate. They offer such services as disk space, computer horsepower, security, disaster recovery, and data backups. Examples of ISPs include Exodus, Interliant, Navisite, and even AOL.

These categories are most important from a vendor's perspective, as they provide a means of understanding why certain companies join an ASP offering. From a buyer's perspective, the ASP is the company with whom it signed the contract. The ASP company could come from any of the categories mentioned, and buyers want to hold the ASP responsible for integrating and managing all the selected services.

Considering an ASP Solution

When applied to the right situations, and implemented with the optimal mix of applications and services, the ASP model provides such attractive benefits to both buyers and solution providers that it is destined to become the standard for providing functionality for many segments of the software market. While selling "solutions" rather than merely products or services is a common marketing cliche, it rings true for many ASP offerings.