Stuck in low gear?
The ASP model boasts myriad benefits, yet it slowly gains traction
By Paul Nesdore, Contributing Editor -- Manufacturing Business Technology, 6/1/2001 6:00:00 AM
Application service providers (ASP) are claiming cost-of-ownership for hosted solutions to be anywhere from 30 percent to 50 percent less than traditional software licensing and in-house system deployments. Why, then, aren't more enterprises flocking to get on board?
Part of the reason is the difficulty in mapping the varied manufacturing business models onto radically different ASP offerings. In essence, ASPs "rent" applications to end-users rather than sell them software to install in-house. But beyond this core model, there are many variables. Some ASPs, for instance, offer software from multiple vendors. Many others partner for data center capabilities, while another part of the market is made up of independent software vendors with ASP deployment options, or ASP units.
Other factors impacting rapid ASP uptake include some cultural resistance against moving critical applications out-of-house, even though functions such as payroll have been outsourced for eons; as well as the degree of stability of ASPs, a fear that's been fanned by several ASPs going under in recent months.
No one wants to go to their ASP's Web site and read a notification like this one from Red Gorilla, a now defunct ASP: "The Gorilla Time application has been permanently shut down. Please consider converting your time and billing data to Timesolv, an established software development company with decades of experience."
Daniel Miklovic, a vice president at Gartner, a Stamford, Conn.-based information technology (IT) advisory firm, views the momentum for the ASP market in terms of a lazy S-curve. "We call it the hype cycle," he says. "It goes from the technology trigger, to the peak of inflated expectation, through the trough of disillusionment, back up the slope of enlightenment, until it finally comes to the plateau of productivity."
How are different applications faring along the hype cycle? Miklovic explains that hosted enterprise resources planning (ERP) systems are probably somewhere between one-third and half-way up the peak of inflated ASP expectations; enterprise asset management (EAM) software is lagging ERP a bit; and supply chain management and manufacturing execution systems are "almost imperceptibly off the axis."
Gartner foresees a major vendor shakeout in the ASP market. In a predication made last summer, Gartner contends that by the end of this year, nearly 60 percent of ASPs will dissolve due to bankruptcy, lack of venture capital, mergers, or traditional competition.
While most experts agree the ASP model has yet to hit full stride, application hosting has many proponents who offer compelling arguments for the model. Joe Batteiger, a director of marketing at Provia, a Grand Rapids, Mich.-based provider of supply chain execution software that offers an ASP option, sees two major motivations for a hosted model: resources and capital outlay. "Manufacturers' IT staffs are overburdened and there's a staff-retention problem too," Batteiger says. "Rather than shelling out hundreds of thousands of dollars to buy new software, these manufacturers want to save the capital for other purposes."
The ASP model also has believers among end-users. For Western Digital, a manufacturer of hard drives and accessories based in Lake Forest, Calif., using an ASP was an easy decision. "We were developing our e-Business systems internally," says Ed Inal, Western Digital's vice president of customer service and support, "but ultimately we concluded that the right thing to do was to have the project done by a company with the necessary infrastructure and e-Business expertise."
Speed and focus
Western Digital chose Aqueduct, an Aliso Viejo, Calif.-based ASP that specializes in sell-side e-commerce solutions for manufacturers, as its e-Business solution provider. A major benefit of going the ASP route, says Inal, was the speed of implementation.
Western Digital started talking to Aqueduct last September, and was up and running by Nov. 15, 2000. "Aqueduct was able to make use of some of the e-commerce functions we had started to build, so in that sense, they did not have to reinvent the wheel," Inal says. "But overall, it delivered an e-commerce solution that we couldn't build internally in a timely and cost-effective manner."
Western Digital's ASP implementation now allows its customers to buy directly over the Internet. In addition, Western Digital is using some of Aqueduct's marketing programs.
Corey Hutchison, CEO of Aqueduct, explains that a hosted e-commerce solution offloads the worry of system and process integration to the ASP. "The second the customer clicks on 'buy product,' all of the back-end services—including taking payment, shipping the product, handling the customer service, taking returns—are taken care of by Aqueduct, using the manufacturer's brand image," says Hutchison.
Many variations
Oracle Corp., a Redwood Shores, Calif.-based vendor of e-Business and enterprise applications, was one of the first major enterprise system vendors to pursue the ASP model. Recently, Oracle rebranded its ASP offerings under the Oracle.com name.
According to Don Haig, a vice president with Oracle.com, the applications outsourcing concept involves vendors that range from IT consulting firms that offer fully outsourced IT operations on one end; to providers of focused, Web-based services—such as eBay—on the other. "For eBay, there is no off-line equivalent," says Haig. "You don't have to receive a CD, install software, or do any implementation work. You get on-line and use it, and that's the end we are trying to move to."
Currently Oracle is hosting its entire e-Business suite and no third-party products. Oracle has more than 100 customers for its ASP offerings, and approximately 20 percent of this business comes from manufacturing companies.
"We're trying to make this an entirely on-line experience," Haig adds. "I expect that over the next six to 12 months, we will have about a dozen defined bundles of applications. The product will be bundled with product support, hosting services, and consulting."
Several ERP vendors that focus on small- to medium-sized manufacturers also offer ASP programs. ERP systems bring together key transactional and planning functions under a common database structure and user interface. Thus, hosted ERP solutions can meet most business system needs, especially for smaller enterprises.
Made2Manage Systems, an Indianapolis-based enterprise applications vendor that focuses on small- to medium-sized manufacturers, offers its ERP package under an ASP program called M2MExpress. Limiting the offering to just its product is an advantage, claims Abby Wood, M2MExpress product manager. "We focus only on applications from Made2Manage, which means our customers are guaranteed they have a provider that is very familiar with the application and their needs," she says.
Marty Osborne, a vice president with Datastream, a Greenville, S.C.-basedEAM vendor that offers an ASP program, compares the reduced complexity under its ASP offering to acquiring telephone service. "What you buy from Datastream is like buying dial tone," Osborne says. "We supply everything. One stop, one phone call."
A pure-play ASP offers software developed by other vendors. Some offer packages from multiple vendors, and could be termed aggregators of applications. For example, San Carlos, Calif.-based Corio offers a best-of-breed selection of packages under the Corio Intelligent Enterprise branding.
Since Corio offers no applications of its own, its strength lies in tying it all together. "Corio provides the infrastructure and technical services behind the suite," says Feliz Fuentes, Corio's marketing director. Specifically, Corio offers applications from PeopleSoft, Siebel, Sun Microsystems (StarOffice), Commerce One, Cognos, and others.
The ASP market also involves vendors that developed applications with ASP delivery in mind. For example,
theSupplyChain.com, Newport Beach, Calif., developed its supply chain-focused enterprise system as a Web-hosted solution for mid-market enterprises.
A pure-play ASP that brings together applications from multiple vendors is Agilera, Englewood, Colo. "To our clients, we're a general contractor of sorts," says Greg Benton, manufacturing industry practice manager at Agilera. "We bring the systems integration, as well as the applications themselves."
Vertical industry expertise is something that end-users should look for in an ASP, adds Benton, who himself has a manufacturing background. "Many of our consulting sales and strategic alliance management people come from manufacturing and industry consulting backgrounds," says Benton. "We draw upon this manufacturing operations and business process expertise to be more prescriptive in the application services we offer. The ASP decision shouldn't be driven solely by IT-related factors."
Look at all costs
Almost all enterprises that go the ASP route have some degree of system modifications or systems integration work involved in the solution. These tasks can range from simple to complex, with services figuring into the costs of most ASP offerings. Many ASPs, however, offer a set implementation or "start-up" fee for a set range of services.
Manufacturers can help streamline ASP deployments by eschewing customization. Carryl Smith, CIO of Orlando, Fla.-based Triton—a wireless fiber infrastructure manufacturer that chose Oracle as its ASP—says the key to efficient ASP deployment is to "stay very vanilla with the applications. I find that most of the changes requested are made with the intent to have the application look like the legacy system someone is comfortable with, as opposed to changes that are intended for business reasons."
Through Oracle's ASP program, Triton has access to a broad range of functions from Oracle's enterprise system suite, including financials, manufacturing, order management, and human resources. One driving factor behind Triton's ASP decision was the CEO's desire to install a solution that could scale with company growth, says Smith. "He didn't want us to be in the position of having to convert to a more powerful system when we were trying to get market share," says Smith.
Triton's ASP decision also was driven by cost analysis. Smith believes that Triton is paying roughly half of what it would cost it to run the same systems internally. "We would need an Oracle applications DBA [data base administrator], which would price out into a six-figure salary, plus benefits," says Smith.
Calculating need
Ultimately, the ASP decision comes back to the question of whether an organization would have a quicker return-on-investment (ROI) or a lower total cost of ownership under an ASP. To assist, many ASPs provide templates to calculate one or both of these measures.
Corio, for example, supplies an ROI calculator function on its Web site. While careful research is advisable, such calculations may not always provide the answer. "You can get into lots of arguments and nitpicking over the assumptions you make in doing such analyses," says Haig.
Haig argues that for many ASP prospects, the ability to quickly go live with a full suite of enterprise applications is the most important factor. "Particularly for new customers, the speed of deployment is a big factor because they don't have to set up a technical environment. Subsequently, they can leap frog that phase and get right into configuring the applications and using them."
For more info:
Agilera: www.agilera.com
Aqueduct: www.aqueduct.com
Corio: www.corio.com
Datastream: www.datastream.net
Made2Manage Systems: www.made2manage.com
Oracle Corp.: www.oracle.com
Provia: www.proviasoftware.com
theSupplyChain.com: www.thesupplychain.com
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