The ASP Model
(Web-based Software)...
What's all the Fuss About?

The following article gives a general perspective on recent trends where businesses are considering the ASP (Application Service Provider) model to address their software needs using the internet.  Chances are, you are probably already using an ASP and don't even know it.   This article will present the concept behind the most common ASP models, their advantages, and the too often "hidden" disadvantages.  We will also discuss how the ASP model relates to ManageMore Business Software. 

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In the 1960's,  big businesses relied on computers to handle tasks in a completely different manner than the way we think about them today.  Due to the size constraint of a computer (no smaller than Pickup Truck and often as big as a single family dwelling), its high maintenance, and the large expense of developing software to actually do something meaningful, businesses often outsourced there workload to computer companies that were better equipped to address hardware and software needs.  Many companies like IBM flourished from large multi-million dollar contracts to handle many of the worlds largest company's computer needs.

By the late 70's, the concept of charging businesses for computer services by the workstation and by the hour was formulated to handle a larger spectrum of businesses.  This "time-sharing service" was marketed mostly to  smaller companies who needed the benefits of business productivity software, but were not in a position to pay for the large expense of hardware, software, and IT infrastructure.  This time-sharing service model worked by offering businesses the ability to utilize software remotely running on a powerful mainframe system with a team of  dedicated computer professionals staffed 24/7.  This new software marketing technique had high promises of revolutionizing the way software was delivered to businesses.

By the 80's, the desktop computer was born and technology was quickly advancing.  Computers were quickly shrinking in size, increasing in performance, and becoming affordable.  The "time-sharing" concept quickly fizzled away due to these rapid changes.

Today, the proliferation of the web, has again remolded the way that businesses are thinking about software and software services.  Many new business models have sprung up.  One of these interesting models is called the ASP, or Application Service Provider. 

However, a cloud of mystery surrounds the new ASP business concept.  This latest buzz word is trying to appeal to businesses  -- especially small businesses and startups -- because of its promises to drastically lower the costs of software and services.  Much of the ASP concept actually sounds like a re-invented "time sharing service" from a few decades ago.

Could this be another dotcom scandal that is trying to prey on the ignorance of small business?
Well, let us first get a good understanding of how the ASP model actually works before casting judgment on the latest business hoopla.

The terms "ASP" and "Application Service Provider" are applied specifically to companies that provide services via the Internet. In most cases, the term ASP has come to denote companies that supply software applications and/or software-related services over the Internet.

Here are the most common features of an ASP:

• The ASP owns and operates a software application.
• The ASP owns, operates and maintains the servers that run the application. The ASP also employs the people needed to maintain the application.
• The ASP makes the application available to customers everywhere via the Internet, either in a browser or through some sort of "thin client."
• The ASP bills for the application either on a per-use basis or on a monthly/annual fee basis.

Simple versus Traditional ASP Models

ASPs come in all shapes and sizes.  For purposes of this article, we will identify the two most common ASP models and refer to them as "Simple" versus "Traditional".  Whether you are considering a simple ASP or traditional ASP, it is critical that you understand there is always RISK INVOLVED when selecting an ASP.  The trick to getting the most out of an ASP, is understanding those risks and determining whether that risk is small compared to the ASP advantages offered.

Simple ASPs
If you were to start a small business today, you would probably begin by contacting three or four extremely common and largely unnoticed ASPs:

• A Web hosting company - Companies like Verio and Earthlink  provide a classic ASP scenario -- virtual Web hosting. These companies provide hardware, software, bandwidth and people to host Web sites for companies and individuals. Typically, they charge something like $10 to $30 per month for the service, and may host hundreds of accounts on a single machine.  Today, most people acknowledge this type of ASP as an  Internet Service Provider (ISP).
• An e-mail provider - Although many  Web hosting companies usually provide some sort of e-mail service with a Web hosting account, you do not have to use them exclusively.   There are many other simple ASP solutions for your email needs like:
  1. Free services such as Hotmail or Yahoo! Mail
  2. E-mail server ASPs who run exchange servers, POP servers or IMAP4 servers and distribute them on a monthly-fee basis.  These ASPs usually offer more sophisticated capabilities with respect to things like: email forwarding, virus checking, spam filters, alias mailboxes, larger file attachment capabilities, and more.
• A fax provider - Companies like Efax , J2, and MaxEmail provide a fax service that can deliver faxes directly to your e-mail box.  This ASP practically eliminates the need for fax machines and dedicated phone lines.
• An eCommerce provider - One of the quickest growing ASPs are those who provide specialized web storefronts for businesses who want to quickly setup a catalog of their products/services to sell online. 
• A Payroll provider - With constant tax law changes, desktop payroll software and the frequent expense of tax table updates are a thing of the past.  Online providers like ADP, Paychex, and PayCycle deliver a simple internet based method of providing payroll to any number of employees working in a company.  Other advantages include automatic quarterly government filings, direct deposit, and pay-as-you-go workers compensation.

The huge advantage of using these ASPs is the fact that you don't have to do anything to get started. In the Mid 90's, a small business looking for these services would have needed to:

• Purchase Internet connectivity and a router
• Purchase one or more servers
• Purchase Web server software, e-mail software, etc.
• Hire a person to install and administer the software
• In the case of a fax machine, purchase the fax machine and a dedicated incoming line.
• Purchase payroll software and hire a bookkeeper to handle all the corporate paperwork involved with payroll.

Those are tremendous hurdles. Now, most of these services can be ordered and delivered on the same day, and the monthly cost for all of them combined is probably less than $75 per month.

The other thing to note is that ASP versions of these services will be significantly better than anything a small business owner can afford to provide. For example:

• In the case of Web hosting, the provider will normally have a huge amount of available bandwidth, and the bandwidth will be redundant at several levels.
• If there is a problem, trained staff on site 24 hours a day will fix it immediately.
• If you need more capacity, it is available with a phone call and a small adjustment of the monthly fee.
• The ASP will backup the data on a regular basis and is responsible for disaster recovery.

No small business could afford that level of service with a home-grown server infrastructure. 
 

Traditional ASPs
The "traditional" ASP is in the business of renting a specialized web-based software solution to businesses.  Software vendors who use this business model will also use terms like "web-based software services", "Internet Enabled Software Providers" and "Online software solutions".  These and other derivative tag names all refer to the same ASP concept.  Some examples of a Traditional ASP might be:

• CRMDesk is a web-based help desk software that allows customer support automation through the Internet
• AceProject  is a web-based project tracking system that helps to manage all kinds of projects within an organization.
• Mercantec PowerService allows you to create a powerful website that puts a service business online and gives your customers real time access to schedule appointments or other services.

Today, the current trend of many software vendors with expensive software is to become a traditional ASP and offer their specialized software online at an attractive low monthly fee.  In fact, the traditional ASP market was invented by the large software giants that wanted to get their expensive software in the hands of small business.

The ASP Advantage

The ASP model has evolved because it offers some significant advantages over traditional approaches. Here are some of the most important advantages:

• Especially for small businesses and startups, the biggest advantage is low cost of entry and, in most cases, an extremely short setup time.
• The pay-as-you-go model is often significantly less expensive for all but the most frequent users of the service.
• The ASP model, as with any outsourcing arrangement, eliminates head count. IT headcount tends to be very expensive and very specialized, so this is frequently advantageous.
• The ASP model also eliminates specialized IT infrastructure for the application as well as supporting applications. For example, if the application you want to use requires an Oracle or MS-SQL database, you would have to support both the application and the database.

One thing that led to the growth of ASPs is the high cost of specialized software. As the costs grow, it becomes nearly impossible for a small business to afford to purchase the software, so the ASP makes using the software possible.

Another important factor leading to the development of ASPs has been the growing complexity of software and software upgrades. Distributing huge, complex applications to the end user has become extremely expensive from a customer service standpoint, and upgrades make the problem worse. In a large company where there may be thousands of desktops, distributing software (even something as simple as a new release of Microsoft Word) can cost millions of dollars. The ASP model eliminates most of these headaches.

After reading many of the above advantages offered by an ASP, you might be quick to judge that an ASP solution is always a good thing if available.  But be very careful, depending on the ASP model you are talking about, some ASP software services are just not worth the advantages it brings. 

The Big Risks of using an ASP

When you really think about it, an ASP is nothing more than an outsourcing company.  In a manner of speaking, your company is alleviating certain burdens by placing them in the hands of a complete stranger.  Did we strike a nerve with that last statement?  Complete Stranger?

Truth be told... businesses are closing their doors at alarming rates today. Based on information gathered by the U.S. Census Bureau's Characteristics of Business Owners Database, less than half of businesses that employ people are still operating five years after they open.  More over,  cumulatively 64.2% of the businesses are failing (discontinuance of ownership) in a 10-year period.  This unfortunate statistic doesn't  just affect small businesses either... recent bankruptcy problems with MCI WorldComm and Enron Energy Corp. in the United States depicts that even the largest of corporations can have financial troubles at a moments notice.

The ugly fact about ASPs is that you are really not in total control of your business.  You give up the control for the sake of convenience and money-savings.  This can spell DISASTER for many businesses that have not thought of a contingency plan if and when their ASP becomes insolvent.

As a business, you must be prepared for the possibility that your chosen ASP closes its operation without notice (which is often the case with the online web-based companies).
The following are important questions you must ask yourself before taking the ASP plunge:

1. How quickly could you find another similar solution?
2. How many days could your business survive without a replacement solution?
3. How valuable is the information that was exclusively stored at the ASPs server?
4. How much sales revenue would be lost as a result of any downtime?
5. What is the likeliness that a lawsuit will recover my lost revenue, database, and/or business?

Risks involved with Simple ASPs
Let us look at the business risk involved when dealing with Simple ASPs.  We will use the same common Simple ASP's used in our prior examples.  In the chart below, the business risk factor ranges from Very Low, Low, Medium, High, to Very High.

From the chart above, it is evident that  Simple ASPs are not that risky.  The risks are quite small compared to the incredible advantages.  If you tried to handle these aspects of the business yourself, you would probably encounter longer downtime if a key employee were to leave you in the midst of your daily operations. 

The low risk involved for using any Simple ASP can be summarized by the following:

• Little chance of losing critical data if company were to go out of business
• Easy recovery of service to another ASP without much hassle
• small role played in your critical day to day business operations

The simple ASPs are the driving force behind the hype of ASP advantages... and rightfully so.  The traditional ASP model has gained much of its recognition and acceptance because of the success of the simple ASP model.  But as you will discover, their is a big difference in the risks taken when one considers a traditional ASP.

Risks involved with Traditional ASPs
Now, Let us look at the business risk involved when dealing with traditional ASPs. Traditional ASPs make up the largest portion of the ASP market and vary dramatically in the specialized software that they offer online. 

Traditional ASPs are, for the most part, software vendors who have changed/adapted their strategy to a web-based solution offering versus a licensing fee / software upgrade price scheme.  These ASPs typically rent their software based on a workstation basis. 

When considering a traditional ASP, there is an unfortunate "leap of faith" involved that is much greater than that of  the simple ASP model.  As you will see in the chart presented below, the traditional ASP requires more of your business fundamentals to be managed and maintained by them exclusively.  This puts your business at extremely elevated risks if something were to go wrong with your ASP.

The chart presented shows some common online business productivity solutions being offered today and the risk assessment they present to an ASP client.

After looking at a small spectrum of applications, it becomes evident that many traditional ASPs who offer mission critical applications, are more than just an online software supplier.  The traditional ASP becomes an integral part of the success or failure of your business.  Choosing the wrong ASP can easily cost your business more than twice the savings you would otherwise have achieved.  In many cases, it could even cost you your entire business. 

If you think it can't happen to you, read this May 2001 article titled Demise of Pilot seen as blow to outsourcing by Ellen Messmer of Network World.  The ASP company "Pilot Network Services" had big name clients like The Washington Post, The Los Angeles Times, PeopleSoft, The Gap, GE Capital, Newsweek and more.  That impressive client list didn't stop this multi-million dollar backed company from filing bankruptcy and ultimately pulling the plug on its entire operation.  It left many companies scrambling to find other comparable solutions at a moments notice.  Other extremely large meltdowns in the general ASP industry, such as Pandesic LLC and Red Gorilla have had many company's rethinking their ASP strategy.

The high risk involved for using any Traditional ASP can be summarized by the following:

• High chance of losing critical data if company were to go out of business
• Difficult recovery of service to another ASP
• Plays too large of a role in your day to day business operations
• Likely periodic downtime from ASP/internet issues can affect company revenue/reputation
• Considerable downtime if forced to suddenly switch service to another ASP

Therefore, meticulous consideration is needed before gambling your business away on the selection of a traditional ASP.  To make matters worse, there are several other critical issues that commonly occur to Traditional ASPs that could further jeopardize your company's revenue and future reputation. 

Other Potential Risks and Pitfalls involved with ASPs
The last thing an ASP will ever disclose to you is that their exists a very real potential for considerable downtime at periodic times and that there lies other big risks besides an ASP going bankrupt.  In other words, the possibility of not being able to conduct business at critical moments in your business is very real.  So is the possibility that your sensitive database is not taken care of in the same secure manner that you would expect.

In actuality,  many things can go wrong between your office web connection and that of the ASP. In some cases, the problem can be on your end of the connection. In other cases, the problem can be that of the  internet itself.  But in most scenarios, the problems will arise from inefficiencies that spawn from your ASP.

The following chart depicts some of the more common pitfalls uncovered by clients who use traditional ASPs for their mission critical applications. 

After reading all of these potential landmines, one might think it is not worth the trouble to place your business in the hands of a traditional ASP.  Well, that's not entirely true in all circumstances.  The point is that one cannot blindly assume that the ASP model is an automatic advantage over the conventional way of purchasing software.  The low cost of entry and short setup time can be a real tease for many startup businesses.  But as we have demonstrated above, there is a lot more to it than just connecting to the internet and renting software.

For this and other reasons, almost all ASPs have lengthy contracts to protect themselves from client law suits in the event that you are locked out of your online application.  ASPs are no dummies... they know that there is no way they can guarantee 100% uptime. In fact, they can't guarantee much of anything.  Most ASPs will just make the contract sound like a simple formality... but don't be fooled by this.  The contract made between you and your ASP is critical if you are to have any chance of a successful experience with a traditional ASP.

Web Apps - Not Always so User-Friendly

Another not-so-commonly discussed  issue when referring to ASPs and their applications, is the software program design itself.  Many ASPs want to WOW you with mumbo-jumbo computer jargon (e.g. CGI, Cold-Fusion, Java, ASP.Net, etc.) that does little for making your online session feel exactly like the comfortable, quick and user-friendly design of a natively written desktop application.  This is because a good portion of ASP applications rely on HTML as their driving mechanism.  HTML is the same language that is delivering this web page to you right now.

However, HTML was never designed to handle complex forms, context-sensitive help, native OS  controls and more.  Therefore, ASP developers often have to create more complicated programs with screen designs that often take several steps to fill out versus simpler one-screen layouts found in most desktop applications.  HTML based applications are also clunky when it comes to on-demand lookup tables, edit-in-place capabilities, smart data entry controls that can automatically pre-fill fields while you are adding records, etc.  It may not seem like much, but when one customer has to wait an extra 10 to 15 seconds for an employee to fill out an invoice, place an order, schedule a job, etc., it can really start to add up.  It takes time to constantly wait for your online session to go back a page, refresh the current page, or move forward to the next page on each "Submit" button pressed. 

Of course, an ASP provider using HTML for their software design will gloat about how their "pure" web-based application can run on any operating system (i.e. Linux, Windows, Mac OS).  But what small business really cares about that aspect?  Only the largest businesses tend to have legacy issues where certain branches use one operating system versus another.  Most all other businesses will invest in one technology to maintain and run all their business applications.

All in all, when evaluating an ASP software solution, you must look closely at the software design as well.  Considerable delays in employee productivity are all too common in many pure web-based applications where Submit... <wait a second> Submit... <wait a second> Back... <wait a second> Submit... <wait a second> are a way of life.

Being Your Own ASP

For many businesses, the main attractiveness of the ASP model is its ability to connect employees from anywhere in the world to one centralized system.   This allows a business with multiple locations to easily spread out across multiple cities or states and still be in total control of the entire company database.  Instead of installing computer servers at each location, administering multiple computer networks, hiring IT staff or consultants to maintain the infrastructure, purchasing expensive Server licenses at each location, etc., you can place all of your eggs in one basket.  Namely, you can have one designated location that will serve as the nerve center for your entire computer network.  Due to the proliferation of the internet, remote connectivity is now a reality for even the smallest businesses (and you don't need to rely on some other company to provide this capability).

Given all the risks of using a traditional ASP for remote connectivity, many businesses are finding that it is easier to setup their own server and become their own private ASP.  You won't get the low cost of entry and short setup time that traditional ASPs provide, but you also don't have to deal with the uncertainty of another company.

Another added bonus of setting up your own remote connectivity system is that you can run any software remotely and not just one specialized application provided by a traditional ASP.  Instead of awkward and often unfriendly HTML based web applications, you can actually achieve web-based nirvana with applications that look exactly as they do on a MS Windows desktop computer.  Imagine having all of your favorite business productivity applications (MS Word, Excel, Photoshop, etc.)  installed on one server, accessible by all locations in your organization.   This takes ASP to a whole new level. The best part is that it isn't that difficult to accomplish.  In fact, almost 50% of ASPs handle their web-based solutions in the same manner we are going to discuss.

Terminal Services Arrives
Back in 1998, Microsoft realized that a not-so-known company called Citrix Systems, Inc.  was making a lot of headway with a product that allowed multiple user sessions to connect to a single server and run the software of their choice locally or remotely with the same ease as a connected PC on the network.  It didn't take long before Microsoft struck a deal with Citrix Systems to purchase the rights to use their core technology in Microsoft Windows NT.  Many software vendors also realized the advantages of such a powerful concept and quickly set up shop as ASPs delivering web-based software solutions using this technology.

As of the date of this article, Microsoft has continued to improve on this core technology and has fully integrated this Multi-OS session design in both Windows 2000 Server Edition and Windows 2003 Server Edition.  It is referred to as MS Terminal Services and can be used in a VPN environment or used directly over the internet.  In essence, a user can connect to a Windows Server using the internet from anywhere in the world and run any software that is currently installed on that server. 

By the way, What happened to Citrix?  Today, Citrix Systems, Inc. (Nasdaq:CTXS) is the global leader in access infrastructure solutions and the most trusted name in enterprise access. The Citrix MetaFrame Access Suite enables people to securely, easily and instantly access the on-demand enterprise from anywhere, anytime, on any device over any connection.  The solutions provided by Citrix actually complement and enhance the capabilities that are integrated with Microsoft's latest OS (Note: Citrix is mostly used for larger enterprises with more sophisticated remote connection requirements. We will not discuss Citrix advantages at this time).

What You Need To Know To Get Started as a Private ASP
For purposes of keeping this section simple, we will be making the assumption that your business needs require a 25-user license for remote connectivity.   Larger scenarios introduce more complex setup that is best left for a software consulting firm to decide. 
The following are typical hardware/software requirements for preparing Terminal Services:

As you can see, this is not a $50,000 investment... not even close.   Also, take into consideration that smaller outfits only needing half as many online workstations will pay about half as much as the estimate shown in the chart above.  You have to start asking yourself:  Is your business worth less than the $10k investment it costs to set up your own ASP system versus outsourcing it to a foreign ASP company?

Yes, it is true that you may need to occasionally call a software consultant to tweak the system, install new software, and/or apply new security patches.  But, a consultant's periodic $150/hr fee will always be significantly less than paying $100 per workstation per month indefinitely.

The only other expense will be the workstations needed to connect to your Server.  A basic $500 computer workstation with Internet Explorer installed and an internet connection (preferably hi-speed connection like Cable Modem or DSL) is all that will be needed.  The same requirements as would be necessary to connect to almost any web-based application.

The following are more references for the do-it-yourself person or your software consultant:

Microsoft Terminal Services Checklist
www.thinplanet.com
www.ncd.com
www.thinclientzone.com
www.thin-world.com

It's hard to believe that after all this talk about the risks of ASP models, that Intellisoft, Inc. (developers of ManageMore™) have had an ASP-like design since before ASP became a buzzword.  That's right... ManageMore was designed in a unique manner to allow for the software benefits of an ASP model, without all the risk. 

Think about it... what is the biggest selling advantage to the ASP model?  It's price... of course.  Software vendors who sell expensive software have been using the ASP model as a new sales channel to offer smaller businesses their products at a reasonable monthly rate. However, Intellisoft originally designed ManageMore  Business Software with this same concept in mind. Intellisoft  invested its time in a unique strategy that offered  a low cost software rental option that gives the same price advantages as an ASP model.  The difference lies in the mechanism in which it is presented.  ManageMore installs on your own computer system versus the ASP model which relies on its software running at its location only with an internet connection.

Other ManageMore advantages compared to the traditional ASP model are:

1. No dedicated internet connection is required for small businesses to access their software.
2. No remote performance issues to deal with because ManageMore runs directly on your own computer hardware.
3. Your sensitive database information remains secure at your office at all times.
4. One can easily switch from a rental concept to a full purchase whenever you are ready.
5. Security concerns are less of a problem because the public internet can be eliminated completely by setting up your own VPN.
6. Data backups are controlled and maintained by your office only.
7. Lower cost per user, compared to similar rates charged by competing ASPs  (around $70/mo for 5 users of ManageMore versus an average of $350/mo for 5 users on an ASP software).
8. Software upgrades can be controlled by the user easily.  Instead of new features and software design changes being forced upon the user (like the ASP model does), the user can simply decide when its best to upgrade, click on a button, read the latest features available, and download the latest upgrade in about an hour's time.

About the only disadvantage is that you are still responsible for building out your own network.  However, if you properly weigh out the risks already mentioned when using a traditional ASP, you may find that it is not worth the initial savings.   In fact, many industry experts agree that the ASP model is all about software and very little about IT cost reductions.

Additionally, if you like the ASP advantages of remote connectivity for all of your offices... you can have that too.  Products like Microsoft Terminal Services (discussed in the prior section) gives you the same power and flexibility as the ASP way of connecting workstations except you are in total control of the system and not the other way around.

Intellisoft's unique software rental concept takes away much of the major concerns that come with using the traditional ASP models.  As a result of Intellisoft's unique ASP paradigm (i.e.,   separation of hardware from software), the total cost of ownership is also dramatically less compared to every comparable web-based software solution.

There are definite advantages to certain ASP offerings in today's fast paced world.  As already mentioned, the simple ASP model is clearly a win-win strategy for most small businesses because of the low risk assessment.  But many of the bandwagon traditional ASPs will have a very hard time convincing businesses that there are no hazards and all advantages to placing an entire enterprise's sensitive business data on someone else's equipment in a faraway land. 

In the end, the main things that a business should really concern themselves with are:
A. Does the software meet my business requirements?
B. Is the software mature (i.e. stable and free from defect)?
C. Is the software affordable (within my budget)?
D. Is the software developer dependable and reputable (i.e. good management, financially secure, more than 5 years in business, etc.)?

The rest of the stuff regarding whether applications can be hosted via the web or not is pure semantics.  As we have already demonstrated in this article, any application can be set up to run remotely over the internet or through a VPN.  In most cases, hardware costs are insignificant in comparison to the risk of completely outsourcing key aspects of your business. In fact, The Gartner Group (www.gartner.com)  has already estimated that 60% of ASPs will go out of business over the next year alone.  A number that should concern anyone considering traditional ASPs.

In an excellent article written by Maria Atanasov of ZDNet, titled ASP Trap: The Complete Guide, much of the problems with ASPs are uncovered and more good advice is presented on how to avoid problems that have already bitten thousands of companies that took the plunge with ASPs.

So why all the fuss about ASPs replacing the way software has been sold for the last 40 years?  Well, it may be that those who are blowing the horns the loudest are the ones who gain the most from the traditional ASP market emerging victoriously.  As Maria Atanaosov of ZDNet states "Could it be that the strategic benefits of using an ASP seem too irresistible to companies large and small. Why pay software companies every year for the privilege of installing and supporting their applications on an arsenal of PCs when you can hire out, accessing the same programs across the Net?."   Or could we be looking at another dotcom promise of instant success that has stock investors investing billions of dollars in ASP companies?

Let us now leave you with a handful of eye-lifting ASP articles from around the world and let you decide where the ASP will take your business. 
ASP - QuickSilver rather than Gold?
Boy, that was fast!
ASPs: Which Will Survive?
ASP market diluted by bandwagon hoppers
Companies 'leap the faith' in ASP adoption
The Shrinking ASP Market
Where Now for the ASP Market?
ASPs Not to Be?
ASP Stands For Awful Stock Pick