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Enhanced services and richer technology mean that ASPs may deserve a second look
The application service provider industry isn't what it used to be, but that's a good thing. At the height of the Internet frenzy a few years ago, rent-an-app vendors sprung up to offer startups and small and midsize companies a low-cost way to get high-priced enterprise software and services. But business faltered because of the twin pressures of the dot-com bust and unsustainable business models.
Yet some of the same things that made the ASP model attractive to those companies a few years ago are drawing a new crop of customers, including some big-name accounts, in today's more constrained times. More and more businesses are willing to give up some control over their applications to save money, simplify operations, get fast return on investment, and redeploy IT staff to more strategic tasks. But software-as-a-service providers--from enterprise suite and software specialty vendors to pure-play hosting outfits--also have new tools and have learned a few things about how to address customers' concerns about integration with other applications, customization, and planned upgrades, while maintaining the economies of scale that can make the hosting business a profitable one to be in. And they're looking to extend their business models to encompass higher-end services, such as business-process outsourcing.
A few years ago, executives such as Doug Meeker, VP of operations at AOL Time Warner, might not have turned to an application-hosting provider, because many larger companies had concerns about security, scalability, and whether these providers had the staff and expertise to understand how the applications that companies deploy affect their businesses. Over the past several years, though, AOL Time Warner has tried a number of off-the-shelf and homegrown contact-management and sales-tracking programs with little success. Instead of continuing to burn up internal development, software, and hardware resources, Meeker decided to try a suite of contact-management apps from Salesforce.com Inc. Thousands of AOL sales reps now use the application, and Meeker has no complaints about scalability.
"We became very enamored with the ASP model," he says. "To me, it's nirvana; we're not hosting it, we're not messing with hardware." Plus, the Web-based platform, with a portal that lets salespeople quickly see how close they are to hitting targets, makes the software easy to use, so people were eager to adopt it, Meeker says.
WHO'S BOUGHT WHOM?
Consolidation has marked the pure-play hosting market. Some highlights:
May 2002 -- USinternetworking completes merger with Interpath
June 2002 -- Exigen Group acquires Portera's professional-services automation business
August 2002 -- Corio buys QwestCyberSolutions' ASP assets
March 2003 -- Surebridge acquires ManagedOps, following October 2002 acquisition of Transchannel
April 2003 -- BlueStar Solutions acquires Agilera, which had previously acquired United Messaging and Applicast
May 2003 -- Navisite acquires all assets of Interliant, following its January 2003 purchase of Avasta and December 2002 purchase of ClearBlue Technologies
Data: Gartner and vendors
Research firm IDC projects a 26% annual growth rate for the software-as-a-service market, from $1.8 billion in 2002 to $5.7 billion by 2007. One of the biggest developments helping breathe new life into the ASP space is the rise of Web services. ASP providers' support for tools that incorporate Web-services standards promises to help solve thorny integration problems that hampered the effectiveness of the ASP model, as customers struggled to connect internally managed software with outsourced applications or to connect apps hosted by different vendors.
Allied Domecq Quick Service Restaurants, the parent company of Dunkin' Donuts, Baskin-Robbins, and Togo's fast-food restaurants, shows that the integration problem is still a big one. The company's franchisee data mart is hosted by Qwest Communications International Inc. Allied Domecq CIO Michael Furlow wants to find an easy way to pull that data into the company's internal enterprise resource planning systems, and he believes Web services may be the answer. "We're starting to explore Web services. We don't have a strategy fully defined yet, but we think it's very promising," Furlow says.
Belgacom SA, Belgium's largest telecommunications company, has turned to an ASP for speed and integration ease. Last year, the company's Skynet ISP division (since integrated into Belgacom) wanted to cut costs by providing automated customer support over the Web and by more efficiently routing telephone queries to the right agents. Eric Pageau, a consultant who acted as system architect on the project, turned to hosted software partly as a result of Belgacom's mandate that "this could not be a big project that would take two years to implement," he says.
Pageau settled on a combination of hosted customer-support software from RightNow Technologies Inc. that it could implement in 10 days and an internally managed Cisco Systems computer-telephony integration system designed to route service calls within a contact center. He was able to integrate the RightNow suite with the Cisco software using a combination of XML and Java programming. Customer queries are routed by the computer-telephony system and delivered to the appropriate agents through RightNow's Web-based front end. Pageau also used Microsoft's Active X technology and Dynamic PHP coding to connect other databases--such as those containing customer financial information--to the RightNow front end so that agents could see a real-time picture of client status. The enhanced self-service capabilities of Belgacom's Web site have reduced customer E-mails by almost 79% and phone calls by 27%. "It's a huge savings," Pageau says.
Other vendors also use XML and other Web-services standards to enhance integration capabilities. Salesforce uses XML to help customers such as new-wave urban-scooter manufacturer Segway LLC connect its hosted customer-relationship management applications to internal ERP software, the vendor says. Salesforce recently unveiled bidirectional integration between its CRM service and Microsoft's Outlook application that uses Salesforce's XML API to give businesses the ability to communicate with customers using either application and forgo the need for Exchange server integration. Sales and customer-service personnel can log messages in Salesforce's site using familiar Outlook controls.
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