We took advantage of this years Interactive Week ISP customer survey to find out what types of applications businesses are outsourcing or plan to outsource, and to whom. We found that electronic commerce applications and data center applications such as Web hosting and data warehousing are the most commonly outsourced, and software vendors have a slight edge over third-party ASPs as the hosters of choice.
E-commerce tops the list of popularly outsourced software apps. Fifty-two percent of the readers surveyed who use - or plan to use - an ASP, are motivated to do so for e-commerce applications.
"What it boils down to is this: E-commerce solutions are expensive and complex to build, as well as time-consuming to operate and manage. [They are] solutions that a lot of users need access to, [and they] require adequate bandwidth and scalable security," says Liza Henderson, vice president of consulting of TeleChoice. "Scale is one of the big issues here, and a service provider is better positioned to solve scalability issues."
Forty percent of current and prospective ASP users surveyed outsource or plan to outsource data center applications. Thirty-eight percent outsource knowledge management applications, such as e-mail, messaging, word processing and spreadsheet software, and 34 percent use ASPs for enterprise and line-of-business applications, including Enterprise Resource Planning, human resource management and customer relationship management.
Most of the ASP users surveyed outsource multiple applications - the mean number of outsourced apps is 2.3. Of those surveyed who use ASPs, 30 percent outsource one application, 31 percent outsource two apps, 14 percent outsource three apps, and 25 percent use ASPs for four or more applications. Based on these findings, once an enterprise chooses to outsource one application, chances are good that it will outsource another.
A slim majority of ASP users surveyed purchase application hosting services from software vendors rather than third-party ASPs - 53 percent of outsourcers look to software vendors for application hosting, while 47 percent use third-party ASPs. And most of the software involved is from established software vendors like Microsoft, rather than new "Web-native" software vendors like Portera Systems. In fact, 67 percent of the hosted software is from established vendors and only 33 percent from Web-native vendors.
ASP users attraction to software vendors over third-party ASPs for hosting services may be explained by the expertise the vendors bring to the table. According to Henderson: "End users have a much higher level of comfort and trust with the software vendors. Some enterprises liken going to a third-party ASP to getting your Acura vehicles parts and service at Bobs Garage - which may be a generalist and works on all makes and models of vehicles. Also, some ASPs are viewed as middlemen that need to coordinate with different vendors to support the solutions effectively."
Although software vendors are somewhat favored, many ASP customers, such as Caryl Felicetta, design and technical partner at marketing communications firm The Argyle Studio in Edison, N.J., chose Aspre to host a Microsoft e-commerce application, and so far the experience has been a good one. "When we were developing the project, we looked at different ways to do it. Aspre was at the right place at the right time. They have the programmers who know the software and can develop it further, rather than taking what you get in a box and being stuck with that."
Other ASP customers, including Ryan Libel, IT technician of office furnishing company Goldsmiths in Wichita, Kan., use both types of providers. "We utilize one of each. Our virus protection is from McAfee[.com], a software vendor with an ASP solution, and our SFA [sales force automation] software is hosted by Salesforce.com, a pure-play ASP," Libel says. As for why Goldsmiths chose one of each: "Weve had a long-standing relationship with McAfee, and recently shopped around and found their ASP solution was a wonderful fit for us. Salesforce.com provides good service at a good price and has all the features we were looking for."
Goldsmiths also uses an ASP that doesnt fall neatly into a third category. "We have a vendor-related ASP that comes from neither a software company nor a pure-play ASP; [its] sort of supply chain management stuff," Libel says.
As it turns out, ASPs also use ASPs. Rachel Pace, director of product and community development of third-party ASP BizProLink Network, in Fort Lauderdale, Fla., says her company has used "ASP services internally for more than 18 months. We do our payroll, project management, online file storage, etc. The case of payroll is an interesting one because we are currently partnered with both Payroll Online and [Automatic Data Processing] and while ADP is a leader in payroll business, their hosted EasyPay product is in an early stage of development. We have been using Payroll Online since January of 2000 and have been very satisfied with the service, availability and cost."
Some amount of customization is the norm for hosted applications. Forty-one percent of those surveyed require customized applications, and 33 percent use both customized and off-the-shelf applications, while 26 percent use exclusively off-the-shelf hosted applications. Some customize the applications themselves.
"All of the services we outsource are open source enough to allow us to customize the apps ourselves, without a lot of customization by the vendor," says Arik R. Johnson, managing director of Aurora WDC. "Frankly, because cost-avoidance is a very key driver for this kind of thing, [if] it cant be self-customized, then well just do without and keep searching or wait until something that can comes along."
In terms of payment models, the most common way respondents pay for hosted application services is through user licenses. Thirty-six percent of surveyed ASP users pay for application hosting services based on user licenses, compared with 28 percent who lease or rent the application and 23 percent who pay based on a transaction model.
A Word of Advice
The Argyle Studios Felicetta has advice for those looking to outsource applications hosting to an ASP: "Check them out thoroughly, just as you would an ISP. Its just a higher-level version of an ISP. In this market climate, you want to make sure they will be there tomorrow. Get a good relationship with the people there, particularly if you are going to be adding on to the product, as we did.
"Its also a good idea to go to the facility, to see that it exists." Felicetta adds. "When you visit, you can tell a lot from what the atmosphere is like, what theyve invested in terms of infrastructure, their processes and their physical location."