The Way Business Is Moving published by
Issue Date: November 2003

Is it an ASP or an asp?

November 2003

Applications service providers (ASPs) have had a rough time of it. Once the would-be solution to all our IT problems, ASPs soon became yet another dotcom non-starter. Now, however, things are picking up and the business case for ASP makes sense.

It seems like a good idea. Instead of buying, maintaining and running your own servers and business applications, an application service provider (ASP) does all that for you while you focus on your business.
A dream come true for executives, no more fighting with obtuse operating systems that freeze, crash or lose all logic at the most inconvenient times. The ASP handles upgrades, cross-grades, bug fixes and the usual band of cons IT companies inflict on their victims (also called customers), and all the business does is use the application and pay a monthly or annual fee.
IDC anticipates worldwide spending on ASPs will reach $24 billion by 2005. The research group expects enterprise ASP spending to equal almost $13 billion in 2005, up from $693,5 million in 2000. Similarly, Aberdeen Group also predicts ASP spending to rise and reach $14,3 billion in 2005.
Of course, this is the IT industry and making anything simple for users just is not part of the process - and the ASP market is no different. South Africa, as always, has its own unique challenges that can prevent ASPs from succeeding.
What about local bandwidth costs? Security? Ownership of data and applications? Quality of service? Reliability? These are all issues that need to be addressed if an effective local ASP market is to bloom.
It does work
The good news is that these issues have been or are being addressed at the moment and the ASP market is growing. And it is not only the large companies making use of ASP solutions. In fact, it is mostly small to mid-sized concerns that are making use of ASPs for specific applications.
"The uptake of the managed services model is growing steadily in South Africa although perhaps not as quickly as in other parts of the world," Richard Halton, MD of Exordia says.
UUNet's ASP programme manager, Heather Tonkin agrees, stating that UUNet has experienced a surge in interest and activity in its ASP business unit. She estimates the long sales cycles in which companies examined the concept and the costs and benefits are now closing and decisions are being made.
The mid-market is the sweet spot for UUNet's services at the moment, with technologies like ADSL and other broadband options making it a more viable option than having to install an expensive leased line.
"We are also seeing a change in ASP fortunes because company executives are more focused on their business than IT," Tonkin notes. "People are focusing on what is key to their business and outsourcing the non-key areas."
Lyman Smith, director of HP Services agrees. He says the past few months have seen an increase in outsourcing contracts won by HP. In the ASP segment, he also confirms a slow start is now picking up as more companies select this option. "The trend to outsourcing is continuing as people understand what their core business competencies are and focus their efforts on them."
Finally, Eddie Van Rensburg, GM for MWeb Business has also marked an increase in ASP services the company is signing up. He says the reduced costs and low capital expenditure required make it an attractive offering to smaller and even Soho companies.
"Buying a service that can be turned on and off as required has benefits for companies that have varying needs for IT solutions, depending on their business's performance," Van Rensburg says. "The little guys benefit quicker from this model of application delivery - and they do not have the cost of installation and maintenance to worry about."
The bandwidth business disabler
Halton says the issues seemingly militating against a more mass-market uptake of the model are the cost and restrictions of local telecommunications. "The cost of bandwidth in South Africa is still prohibitively high. For a typical small organisation, the bandwidth portion of the total monthly cost of a managed services operation can sometimes run to between 60% and 70% of the total cost."
In a First World scenario there may be the bandwidth to support ASP-type computing, but in South Africa the bandwidth limitations of exorbitant costs for pretty service puts a damper on the idea - apart from large companies that can afford tens of thousands of rand (or more) per month for bandwidth.
"For organisations already running a WAN (wide area network), however, this cost is already being incurred; hence the spend does not unduly influence the outsourcing decision," Halton adds.
Smith also noted that telecommunications costs are the biggest hindrance. Van Rensburg, on the other hand, takes a contrary view and says applications can be written as bandwidth-sensitive as possible. Additionally, if bandwidth is bought from the same company offering the ASP solution, SLAs can be set in place to guarantee the connection speed and quality.
Integr8 IT technical and project manager, Bennie Strydom, highlights another area of concern for ASPs, and this is not specific to South Africa. "Generally, the biggest drawback or issue is that one has to accept that you do not have much control when you outsource according to this model."
Halton says general management is often concerned that by not owning the IT assets may result in loss of control. Similarly, IT management tends to fear the prospect of losing their importance in the organisation or of being forced out of their comfort zone.
"However, a well-constructed outsourcing and service level agreement should render these fears groundless, as strategic control should always rest with the client," he says.
Strydom adds, "One must remember that the nature of this model suggests less direct control over IT infrastructure and benefits. There must be non-disclosure agreements in place because the client is handing over precious assets in terms of company data, etc, to the host."
In the real world
Despite the restrictions, ASP does happen. For example, Scala Business Solutions (SBS) recently announced a R2,1-million licence order with Atos Origin to offer the iScala Collaborative ERP system on the ASP model.
A global IT and application service provider headquartered in Paris, France, Atos Origin will implement the iScala system in 10 countries across Central and Eastern Europe for its customer based on the ASP model.
"The advantage of a hosted solution through an ASP includes fixed project prices for easy budgeting and planning, and easy-to-manage IT infrastructures with no need for large IT departments or investment in skilled staff or expensive hardware," says Andreas Ransmayr, MD of Scala Austria.
"The ASP model takes away a lot of the initial outlay and risks of implementing ERP, as well as significantly reducing the time it takes to become operational. In addition, having a hosted ERP solution can also make upgrades cheaper and faster."
Shamik Sinha, CEO of Scala Africa notes that the ASP model is highly attractive, especially for smaller organisations seeking to enjoy the benefits of a full collaborative ERP system without a large capital outlay. He says the ASP model can be offered in South Africa, and expects interest in the hosted application model to increase as bandwidth constraints are addressed.
"We are encouraged by the success of ventures such as the Atos Origin deal, and believe that as the SNO (second network operator) process draws to a close, the benefits of the model will increasingly be realised in the local market."
Return on investment
Richard Halton, MD of Exordia says the perceived lack of return on IT spend in the ASP model is a general problem the industry suffers from as a whole. "Experience over the past many years has rendered senior management reticent when it comes to approving IT spend on the basis of much promise and seemingly little real return.
"The problem probably stems from a lack of understanding of what the IT spend is and what the objectives and benefits should have been. Given the speed at which enhancements become pervasive within a short period of time, it is unlikely that pure hardware and software acquisitions will provide a sustainable competitive edge. The real benefits come from the implementation and operation of those assets."
He adds that the managed services model unquestionably offers some unique advantages in gaining control over IT speed and effectiveness, but there is still some way to go before this is generally understood and appreciated by senior managers.
Tonkin adds that ASP offers customers the benefits of a redundant architecture without having to pay for the additional technology, as well as the knowledge that their systems are constantly updated and patched without any hassle on the part of the customer. It also takes care of the legal questions, a burning issue in many organisations.
Many ASP implementations also permit roaming. A CEO can remain in touch with whatever is happening while on the road simply by logging into corporate applications from a browser - all applications can then be used as if in the office.
The question of whether to use an ASP service or not is not a simple one that can be made generically. Every company needs to weigh its options and decide on what is a critical function and what can be run remotely. In certain instances, an outsourcing solution may be the answer, in others an ASP solution would work.
Of course it is not always necessary to host applications remotely in an ASP model. Some companies rent software and hardware to customers but keep the technology on site at the customers business. This takes away the bandwidth question and provides the applications over the company's network with acceptable response times.
Whatever the exact nature of the ASP model chosen, if it transpires that the customer will benefit from it, the increasing interest in and adoption of the model is proof that ASP has been accepted as a viable alternative to hosting and managing your own IT. Buyer beware, however, as while an ASP solution is a perfect fit in many circumstances it is not always the better selection. It is a matter of best fit.
Computer Sciences Corporation top ASP in SA
Computer Sciences Corporation (CSC) has announced that its operation in South Africa has been named the top Applications Service Provider (ASP) in the country, according to recent research done by BMI-Technology.
The research findings rank CSC in South Africa as the leader in this market in 2002 with a market share of 28,1%. Its closest rival had a 10,7% market share.
"The BMI-T report confirms what we have long believed - that we are a major force in this growing market through our provision of SAP, Oracle and Siebel skills and CSC's own application product set within an expanding national client base," says Jim Kleyn, director for Application Services for CSC in South Africa.
CSC's base of world-class applications service skills in SA is being used by the multinational as part of its offshore strategy to deliver significant cost savings with improved service levels to global companies needing 24/7 support.
In the BMI-T report CSC in South Africa is rated as the third most significant information technology (IT) company in the country.
Kleyn says this is a major achievement for a company that opened its doors only four years ago. "We are ahead of larger companies that have offered this service in South Africa for decades."
EDS number one in application management
EDS recently announced that IT services analyst firm IDC recently ranked the company as the number one global services provider in Application Management for the year 2002. This marks the second year in a row that EDS has garnered the top honours. The report ranks vendors based on estimated global application management revenues.
According to IDC's report, the top 10 application management providers captured an impressive 62,4% of the market in 2002, and like last year, EDS took the number one seat.
IDC defines application management as the ongoing support and management of custom-built or packaged applications or systems of applications. EDS' application management services are broken down into three areas:
* Applications development and support - which includes the creation, delivery and monitoring of new, customised client applications.
* Selective outsourcing - which includes core applications management and support for specific applications or entire application portfolios.
* Enterprise application management - which includes help desk and program management services, vendor fixes, enhancements and functional extensions for popular enterprise software packages such as SAP, PeopleSoft, Oracle or J.D. Edwards.
Last year, EDS launched its Best Shore initiative, which offers clients the flexibility of receiving applications management and other IT services from 16 low-cost solution centres in 13 countries, including Mexico, Brazil, Ireland, Australia, New Zealand, South Africa and India. Best Shore also provides efficient follow-the-sun capabilities, which can significantly decrease the time it takes to develop and deploy application services.
Payroll outsourcing: a good idea?
A company that outsources its payroll to a specialist outsource bureau does not relinquish control thereof, but actually enhances its effective administration, this is according to Teryl Schroenn, managing director of Accsys.
"An outsource bureau is not only a disinterested party that does not have access to company funds, but also knows exactly which control procedures to put in place."
To avoid the occurrence of errors, Schroenn recommends the implementation of a system of checks and balances that are carried out before salary payments are made. "For example, the operator who does the salary calculations should not be the same person who authorises pay-over to the bank.
"Anybody can make an honest mistake," she continues. "Consequently, all payrolls should be thoroughly checked for variances and signed off before salaries are paid. While this may slow down the administration procedure somewhat, it is worth it where money is involved.
"A reputable outsource bureau will always have comprehensive backup systems in place, including the storage of copies in a secure, off-site environment. Other security controls should include high-level encryption technology as well as appropriate firewalls to prevent external hackers from gaining access.
"Besides the fact that outsourcing can be more cost-effective in the long run, it also affords companies peace of mind by allowing them to concentrate on their core business, while a specialist company assumes responsibility for the payroll administration. Unarguably, this is what control is all about," Schroenn concludes.
Sandra Swanepoel of Pastel Payroll is more sceptical of the idea. She believes outsourced payroll has not taken off because payroll is not simply a salary anymore, but needs to take additional issues such as equity and skills levies into account - among other things.
In addition, she notes that payroll is a conservative industry in which almost half the people still do their payroll manually.

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