The success of a few key Application Service Providers is nothing less than the crack of doom for the long-established model of selling enterprise software packages.
In a few years the purchase of enterprise scale software packages could become as obsolete a business practice as employing squads of bookkeepers with eyeshades and paper ledgers to maintain corporate accounts.
That's because the benefits of dealing with an ASP will, in the long run, far outweigh the cost benefit of buying packaged software. Two exceptions: fundamental corporate applications, such as desktop productivity software and some database programs.
Every major application that an organization installs in-house requires a costly hardware infrastructure to run it and people to maintain it. With the ASP model all the application features are available through a web browser and the service provider takes on the expense of providing the software and hardware infrastructure to deliver the service.
ASPs today are much more scalable than they were when the services came online nearly five years ago. Many of these services installed existing client/server programs on their sites and simply enabled customers to access those applications through a Web browser.
Some used licensed third party software that required the ASP to install a separate copy for every customer. That meant the ASP had to replicate the entire application hardware and software stack for each customer, a model that was neither economical nor scalable. Performance and sometimes even security were weak. That's why they failed.
Today's providers are offering applications designed from the ground up to run as a service. RightNow Technologies Inc., a customer relationship management ASP, estimates that its services can save customers at least 50 percent of the cost of an internally hosted application by eliminating the hardware and software infrastructure to run it.
RightNow, based in Bozeman, MT., is one of a rising number of ASPs that are winning the confidence of a growing roster of customers. Others in this category include Salesforce.com, and Salesnet Inc. of Boston.
But perhaps the most compelling advantage of working with an ASP is that the customer has a far greater level of control over the business relationship. Buying a major enterprise application can feel like being joined at the hip with the vendor. The customer is buying into the vendor's application architecture and business strategy.
If that architecture is flawed or if it cannot adapt to changing business needs or technological advances, it's very difficult to switch without considerable cost and business disruption.
With an ASP the customer has a much great control of the relationship because they get fixed-term service contracts. If the customer is not happy, switching doesn't involve scrapping a huge investment in software and hardware.
Working with an ASP also means you only use the applications and features that are most relevant for your operation. The customer isn't tied to creeping application complexity that inevitably results as vendors add features in pursuit of supposed competitive advantage. These features add to the cost regardless of whether they are critical to the customer's business.
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