“Five years from now, if you’re a CIO with a head for business, you won’t be buying computers anymore.  You won’t buy software either.  You’ll rent all your resources from a service provider” – Scott McNealy, CEO of Sun Microsystems.

Whoa, Mr. McNealy!  You mean the ground under our feet is about to move again?  I am not ready for another paradigm shift – it is all I can do to keep my company’s networks, emails and hardware up and running as it is.  I barely made it through Y2K and am still not out of the water from the Love Bug fiasco on my email system.  So what is this “Killer App” that is being touted?

A prophetic quote from one of the information technology industry’s mavens and visionaries is enough to send a cold chill down the spine of many a CEO and to an even greater extent, his CIO and technical staff.

Three months ago I did not have a clue what an Application Service Provider (ASP) was and was caught “brain naked” when the chair of Governor Bush’s IT Task Force, Ms Julia Johnson asked me directly whether or not ASP was in full swing in our region. 

Well as certain as the waves will lap away at our emerald shores, the sea of change in our information-based economy is churning up, what many consider, the next “Killer Application” behind email and the World Wide Web: pay-as-you-go software, the underlying concept of the ASP.

The ASP industry consortium defines an ASP as an organization that “manages and delivers application capabilities to multiple entities from a data center across a wide area network (WAN).”  Essentially, a company can rent software over a WAN or the Internet for a user fee,  programs and services that would otherwise be located on their on computers.  Also referred to as “apps-on-tap”.    A theoretical stretch of this concept fits squarely with our mobile, distributed workforce – employees could simply log on to any web-enabled computer, log-in, and be at their workspace with access to all their files, applications and collaborative tools.

As accustomed as we may be with many of leasing’s benefits for hardware rentals, capital equipment, autos, etc., it is a bit of a reach for most of us to think of renting the software that we use.  While this concept percolates, the major industry players are rapidly posturing themselves with alliances and product announcements to get a foothold in this marketplace.  The “usual suspects” include Microsoft, Sun Microsystems, Cisco, Citrix, Oracle, IBM, Sprint, AT&T, Bellsouth and others but are being hotly tested by brash new players.  It has been estimated by the market research firm Cahners In-Stat Group that $1 Billion dollars (yes, that is billion) will be spent by ASPs on technology this year alone.   The stakes?  A potential market by year 2003 of over $20 Billion, a compound annual growth rate in excess of 80%.

The fueling for this expected growth is derived from three core cost factors that most companies face when deciding to outright purchase a packaged software application:

1.      License fees for these applications are high

2.      Insufficient in-house IT staff to install and maintain the software

3.      High Cost of building and maintaining the IT infrastructure to support the application

By leasing through an ASP, however, the customer doesn’t pay an up-front license fee while the headaches associated with the technical staffing and the infrastructure are outsource to the ASP.

These incremental cost differences could realistically allow the market penetration of application software suites to many of the small-medium sized enterprises (SME) who have been otherwise priced out of contention or simply didn’t have the internal technical staff to support them.  Forrester Research estimates that less than 5% of small businesses have automated basic internal operations like financials and HR (as compared to 100% of large and 50% of middle market firms).  In yet another report, Giga Information Group’s forecast is that up to 75% of SMEs could obtain their software applications via an arrangement with an ASP in the next five years.  In fact, Forrester predicts 90% of its market forecast will be supported by SMEs.

For Northwest Florida businesses, big and small, the playing field will once again be tilted.  ASP vendors will descend into the market en masse armed with industry bridesmaids to bring this concept into our business base.  

Before this occurs several issues will need to be clarified before the ASP industry can move from its early base in the “early adopters” marketplace to mainstream businesses..  Migrating a company’s proprietary data to an off-site server will not be a comfortable proposition unless the company is 100% assured of security and reliability (by the same token, having your data removed from hurricane prone locations might be some consolation).  Akin to the worrisome parents as there daughter goes on her first date with the likes of the rainbow-headed teen that we saw on the Ameritrade commercials.

Another issue is the refinement of ASP pricing models, which by their nascent nature are not models and are not distinct enough to create the perceived benefit it will take to get more customers.

A very useful exercise to grasp the ASP initiative would be to take a no-cost test drive of a “low-end” ASP portal.  HotOffice.Com (http://www.hotoffice.com) is a web-based office suite that is free to join.   After playing with it for a while your imagination will do the rest.

The ASP movement is an approaching reality once the industry giants all find their dance partners.  For the small to medium size businesses this portends opportunities that have been unattainable - affordable software application solutions without many of the headaches.

Scott Jackson
Mindlace Media & Photo
Mindlace.com
E-mail
850-217-7994

Ó 2000 Scott Jackson