Introduction

Definitions of Common ASP Terms
Here are some working definitions and categorizations for analyzing trends and
developments in the ISP-to-ASP industry.These are merely suggestions, as
readers often have their own definitions. Pure-play ASP (which is defined later in
the chapter) examples are hard to find, so this book will use the following definitions
to give perspective in depicting critical developments within the service
provider industry.
What Is an Internet Service Provider?
An Internet service provider (ISP) is an organization that provides access to the
Internet. ISPs can provide service via modem, or dedicated or on-demand access.
Customers are generally billed a fixed rate per month, but other charges may
apply. Some ISPs allow Web sites to be created and maintained on the ISP’s
server.This along with e-mail allows smaller organizations to have a Web presence
with their own domain name. Some larger ISPs also provide news servers,
chat environments, and miscellaneous other services (such as Domain Names
Services (DNS), among others) in addition to Internet access.
What Is an Application Service Provider?
The ASP Industry Consortium, an alliance of companies formed to promote
and educate the IT industry, offers the following definition: “An ASP manages
and delivers application capabilities to multiple entities from a data center across a wide
area network.”
There are variations of this definition, and sometimes the definition and
meanings are confusing.To simplify this definition, an ASP is a third-party service
firm that deploys, manages, and remotely hosts a software application with centrally
located servers in a “rental” or lease arrangement.
An ASP is a mediator that facilitates remote, centrally managed “rent-anapplication”
services between a client and an independent software vendor (ISV).
The client does not own the application or the responsibilities that are associated
with initial installation and ongoing maintenance.The client, through a personal
computer (PC) thin client or an Internet browser, can access centralized computer
servers that host the application.The client then manages the results from
these external applications locally.
The Pure ASP
The definition of a pure ASP is an ASP that joins with a particular ISV, and performs
the initial application implementation and integration. In doing this, the
ASP manages the data center and provides continuous connectivity and support.
The ASP manages client relationships by acting as a complete end-to-end solution
provider.
It is possible for an ISV to bypass an ASP and work directly with the client,
and it is feasible that another company exists between the ASP and the end user.
As an example, Concentric Networks and Exodus Communications manage the
data center infrastructure for Corio; this is considered a “pure-play”ASP.
What Is Information Technology Outsourcing?
Information technology (IT) outsourcing is the transfer of an organization’s internal IT
infrastructure, staff, processes, or applications to an external resource provider.
Outsourcing can encompass anything from the simplest to the most sophisticated
IT infrastructure, processes, or applications. Usually, outsourcing contracts are created
to handle non-core information technologies or processes.
The outsourcing market can be divided into three main groups:
 Application outsourcing (AO)
 Business process outsourcing (BPO) and information utilities
 Platform IT outsourcing
Application Outsourcing
Application outsourcing (AO) is comprised of ASP and application maintenance
outsourcing (AMO), both of which are subcategories of the AO market.The
application provider is responsible for the management and maintenance of software
applications.The difference between an ASP and an AMO is who actually
owns the application.
An ASP remotely hosts and delivers packaged applications to the client from
a centralized location.The client is effectively “renting” the application on a peruser
or per-use basis. An AMO provides management for proprietary, packaged
applications from either the client side or the provider side.
Business Process Outsourcing
Business process outsourcing (BPO) and information utilities providers are primarily
concerned with economic and efficient outsourcing for the highly sophisticated
but repetitive business processes.These processes can be as complex as accounting
and finance, or more recurring processes such as payroll.The provider is responsible
for all of the processes associated with the business process.
Platform Information Technology Outsourcing
Platform IT outsourcing offers an array of data center services, such as facilities
management, onsite and offsite support services, data storage and security, and
disaster recovery.The main differentiation for this type of outsourcing is the
transfer of facilities and resources from the client to the provider.
The ultimate intention of an ASP is to allow the client to interact only with
the ASP for the services involved.The main elements for this integration are providing
the hardware, software, integration, testing, a network infrastructure that is
secure, reliable data center facilities, and qualified IT professionals who can
manage and maintain these services.
The most critical portions of the ASP channel are the ability to include software
vendors, systems implementation, integration, and ongoing support.These
components encompass the responsibilities that are necessary to effectively create
and administer an ASP solution.These responsibilities help define the development
of ASPs. Because of this, there are new opportunities for IT service
providers to establish themselves in these markets and still differentiate their service
offerings.
An ASP is capable of delivering any type of software application, from e-mail
and instant messaging applications to an enterprise resource planning (ERP)
system that can manage, control, and report on the multiple facets of the enterprise.
The ASP should be able to provide prepackaged applications, support services,
and the ability to tailor these packages based on client needs. Generally, the
ASP would like to keep these alterations down to a minimum, as customization
adds to complexity and the associated support issues. Several of the larger ASPs
have publicly stated that there is a lack of customization and they have limited
their implementations to core applications. Part of the reason that ASPs do this is
because they have negotiated short-term, nonexclusive licensing terms with ISVs,
which helps to minimize overhead costs.
The Elements That Make an ASP Viable
What do you need to check to see if the conversion to an ASP is a viable option
to you? There are several factors:
 Is there a reasonable demand either presently or in the immediate future
for your possible service offerings?
 Can the model that you plan to use support the possible growth that
may be unexpected?
 What can you expect for a return on investment (ROI)?
Several of these questions can be answered by planning the life cycle for the
cost of ownership.This is also a good way to gain potential customers, if you can
explain that their output would be economically unfeasible, and it would be
more cost efficient to use your services.
Life Cycle for the Cost of Ownership
What are the elements of the life cycle for cost of ownership? This section indicates
the items that must be incorporated into the internal cost of ownership
model, and the methodology that is used to determine the values associated with
those components.
Elements of the life-cycle cost included in this analysis are:
 The initial cost of hardware acquisition
 Hardware maintenance and associated costs
 Initial system software package acquisition
 Initial application software package acquisition
 Implementation
 The cost of hardware upgrades
 The cost of system software upgrades
 The cost of application software upgrades
 Network administration resources
 Other support (training, help desk, etc.)
The Initial Cost of Hardware Acquisition
This is an average selling price based on common discount levels available for
products from value-added resellers (VARs). In some instances, there may be no
volume discount applied. Also, keep in mind that there is the possibility to
acquire less expensive equipment from local outlets, but you must make sure that
they have the same quality of components or the complete package support of a
national reseller.
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Hardware Maintenance and Associated Costs
The standard warranty for most vendor equipment is between one and three
years, and should cover most issues with problematic gear.The purchase of additional
service for the years following the hardware warranty period is added into
the hardware maintenance category.
Initial System Software Package Acquisition
The initial purchase price of system software such as a Unix platform or a
Microsoft Windows platform and their licensing are considered part of the initial
system software purchase.This category could also include software packages that
are necessary to run the applications on each machine. For example,WinFrame
for Windows Terminals operating system software would fall into this category.
Initial Application Software Package Acquisition
Initial application software acquisition is any application that assists in the productivity
of the organization.This could be an ERP package or some customer relationship
management (CRM) suite that will assist the company in management
and billing for its applications.
Implementation
This category represents the cost associated with initial implementation and configuration
of hardware and software, as well as costs associated with the ongoing
installation of expected upgrades.
Hardware Service Contracts
Hardware warrantees differ for each vendor and device in the infrastructure.
Manufacturers may offer these extended warranties as part of
their purchase plan, or there may be some type of agreement wherein
the vendor may cycle in new equipment based on the timeframe
involved. You should review what impact these and other service scenarios
will have on your business.
Designing & Planning…
Hardware Service Contracts
Hardware warrantees differ for each vendor and device in the infrastructure.
Manufacturers may offer these extended warranties as part of
their purchase plan, or there may be some type of agreement wherein
the vendor may cycle in new equipment based on the timeframe
involved. You should review what impact these and other service scenarios
will have on your business.
Initial System Software Package Acquisition
The initial purchase price of system software such as a Unix platform or a
Microsoft Windows platform and their licensing are considered part of the initial
system software purchase.This category could also include software packages that
are necessary to run the applications on each machine. For example,WinFrame
for Windows Terminals operating system software would fall into this category.
Initial Application Software Package Acquisition
Initial application software acquisition is any application that assists in the productivity
of the organization.This could be an ERP package or some customer relationship
management (CRM) suite that will assist the company in management
and billing for its applications.
Implementation
This category represents the cost associated with initial implementation and configuration
of hardware and software, as well as costs associated with the ongoing
installation of expected upgrades.
Some of the categories you can use to find out the initial implementation
cost include:
 The amount of time and resources that are necessary to install and configure
the equipment
 The amount of time and resources that are necessary to install and configure
the applications for the client base