Faster, Easier, Cheaper

Application hosting's time has not yet come, but this year's Interactive Week survey results suggest that it may be just over the horizon.

Application hostings time has not yet come, but this years Interactive Week survey results suggest that it may be just over the horizon.

A small - but notable - 9 percent of the population surveyed is currently using software hosted by application service providers. Another 14 percent of respondents plan to use hosted application services, while 77 percent neither use nor plan to use an ASP.Click Here For Chart

The fledgling application hosting market has not yet soared because, at least for now, most businesses dont see a compelling advantage to outsourcing what they currently do themselves.

"Many enterprises still feel that they can operate in a do-it-yourself mode more effectively, efficiently, securely, conveniently and cost-effectively," says Liza Henderson, vice president of consulting of market-research firm TeleChoice.

But the fact is that some businesses are currently using ASPs. Why? The answer to that question is especially interesting, considering that 45 percent of respondents using ASPs say they could provide the applications internally but choose not to. The main reason is that they find it easier and faster if someone else hosts select applications, rather than doing it themselves.

Prime Motivations

Our survey reveals two primary reasons businesses outsource application hosting: Forty-seven percent of those that outsource say they do so for ease and speed of implementation, and 45 percent do so for ease of user administration and support.

Cost reduction and the ability to do things better are also common motivators for application outsourcing. Forty-two percent of businesses using ASPs cite the reduced cost of hardware ownership as an outsourcing motivator, and 39 percent mention access to a set of integrated applications. Reduced personnel costs motivate 38 percent to outsource; desire to concentrate on the core business is cited by 37 percent; lower total ownership costs are appealing to 36 percent; faster upgrades motivate 35 percent; and faster access to new applications motivates 34 percent.

Overall, ease and speed beat out all other factors as the primary reasons early adopters are drawn to outsourcing.

"We chose to outsource to an ASP for the most stereotypical reasons: because theyre all noncore functions, like Web site hosting, credit card processing, etc. that could better be handled by someone specialized in that area," says Arik R. Johnson, managing director of Aurora WDC, a competitive research and analysis firm in Chetek, Wis. "Plus, in comparing costs of doing it ourselves, it would have been as much as 10 times as costly to get the same results."

Johnson uses several application hosters and is so far pleased with the results. "Everything has gone extremely well, to be honest," he says.

Caryl Felicetta, design and technical partner of marketing communications firm The Argyle Studio in Edison, N.J., says that cost initially motivated her company to use an ASP.

"We were looking for ways to cut costs. It seemed to be the best way to get the job done and maintain quality. Otherwise, we would have had to get the hardware and software, and hire someone to maintain it. It would have been too tall an order for a company our size and too large a cost.

"This is a good model for us, since we are a small development/design firm that does not have the extra people power to handle updates and technical issues," Felicetta adds.

TeleChoices Henderson sees better times ahead for ASPs, as businesses warm up to the idea of application outsourcing, but she says it wont happen overnight. "The ASP model requires a shift in mindset and culture, as well as trust. The ASPs need to earn the end users trust and confidence incrementally," she says. "ASPs cant expect end users to automatically embrace the model for all of its applications.

"Reversing the trend will require ASPs to be more patient, focus on smaller implementations, target applications that enterprise customers are more apt to outsource and develop prepackaged services for market segments with little to no applications and IT expertise."