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To buy, or not to buy? The ASPs think renting is the answer
Application service providers are springing up right, left and centre - but are there enough good reasons for users to stop holding their apps in-house? Dominic Maher looks at why organisations might want to rent their software from third parties

By Dominic Maher

Published: Monday 20 September 1999

"Five years from now, if you are a CEO 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."

That's the view of Scott McNealy, CEO of Sun Microsystems. But is there any more substance to this prediction than some of the others, proven to be little more than hot air? Remember Larry Ellison's forecast on thin clients, for example?

Application service providers (ASPs) are companies which host applications for end users, who then access them via the Web or a leased line. ASPs will provide these to enterprises and individuals on a pay-per-use or annual license basis.

The market researchers certainly seem to agree that application service provision is set to explode. While the European ASP market will only be worth $14m at the end of this year, it's set to surge to $1.5bn by 2004, according to Durlacher Research. Forrester Research believes the worldwide market will be worth $6bn by 2001.

ASPs are springing up on a weekly basis. A plethora of vendors have already got together in the shape of the ASP Industry Consortium (ASPIC). Meeting for the first time earlier this month, it now comprises over 70 companies - including the likes of Cisco and IBM.

By going to an ASP, users will no longer have to have memory-hungry applications installed on their PCs, which in turn means that "fat" PCs may not be needed - hence McNealy's interest in the subject. Enterprises can regain some control over cost and usage they lost as computing became increasingly decentralised.

The significance of this will be enormous, according to many pundits. "Every company, no matter what size, will be impacted by this model," said Richard Wendland of Durlacher Research. "TCO (total cost of ownership) will be 10 to 40 per cent lower than if you procured the solution."

Microsoft too is getting involved in the ASP space. Jeremy Gittens, group marketing manager, Microsoft, explained that the company is "looking into it", and doing constant research with its customers, but is not yet in a position to reveal any firm plans in Europe. It is, however, a member of ASPIC, and announced the general availability of its 'Complete Commerce' programme for ASPs in the US on September 13. Launched as a pilot project in November 1998 with 10 service providers, it has since expanded to 25. It is now available to any service provider seeking to host outsourced business-to-consumer direct selling commerce solutions for medium and large enterprises. The ASPs that Microsoft is working with offer managed Microsoft Exchange messaging, Office 2000 collaboration, corporate purchasing, media streaming and line of business application services on the NT platform.

One company which has also been looking at this area very seriously is Citrix. Being a major thin client player, the attraction of the ASP model is obvious. The company gives away software to ASPs which join its iBusiness Service Provider scheme; the ASPs charge their end users on whatever basis they like. Citrix, in turn, charges the ASP by averaging out usage on the top 20 days of each month - although it does cost $50,000 to join the programme in the first place.

Travar Greun-Kennedy, director of business development at Citrix and chairman of ASPIC, believes that outsourcing applications can cut TCO by as much as 65 per cent. He believes the market will succeed as long as ASPs get some assistance from suppliers with the risk factor - which Citrix does by providing free software and only charging on a usage basis.

End user organisations are wary of dealing with suppliers they've never heard of. Many of the current crop of ASPs are start-ups. Greun-Kennedy is keen to allay these fears, and said that ASPIC plans to introduce an ISO 9000 standard to get these companies certified.

But there are other factors which corporates need to consider before opting for an ASP strategy. When outsourcing exploded, some customers became locked into suppliers and had trouble monitoring service levels. John Collins, senior analyst at Bloor Research, believes that the same could happen to the ASP market. He said: "People need to go in with their eyes open."

Some see the model as over-centralised - no one wants to return to the "bad old days" where the end user has no control whatsoever over their desktop environment.

And there are other issues - what if the connection with the ASP goes down, or their server falls over? - which are major risks for any company considering running mission critical applications this way.

So, will McNealy's claims that we'll all be renting applications in the future come true? Of course not. As ever, he's being deliberately provocative. But the ASP market will undoubtedly grow enormously over the coming months. The advantages of financial savings, flexibility and ease of application management are too strong to ignore.

For more info, go to:
http://www.aspnews.com
http://www.citrix.com/ibusiness