ASP Backgrounder

ASP Backgrounder
The Ins and Outs of Applications Outsourcing

Source: IDC (annotations by Bill Weir)

The computer industry is abuzz about applications outsourcing. The emerging applications outsourcing industry is composed of many different types of companies, including computer software and hardware companies, network service providers, Internet service providers (ISPs) and application service providers (ASPs).

Outsourcing provides businesses with a viable new alternative to procuring, implementing and maintaining complex software applications. Simply put, applications outsourcing allows businesses to rent software that is hosted at data centers and accessible via a browser instead of running and supporting the application from their own local computers.

Analysts predict tremendous growth for this industry in the coming years as companies look for ways to streamline IT costs and simplify software maintenance headaches. Dataquest, a market research firm, expects the worldwide application service market to reach $23 billion by 2003.

Three key factors drive applications outsourcing in these target markets: The Focus on Core Business; Rapid and Flexible Deployment, and A Lower Initial Investment.

Focus on Core Business

Businesses have core missions, and establish operations to support those missions. For example, the business of staffing firms is to build relationships with their clients and candidates in order to place the right candidates in the right jobs quickly and efficiently. They are not in the business of supporting large IT departments of technology experts.

For companies not wishing to invest in in-house IT resources, outsourcing eliminates the need for IT departments to install, manage and service the software application. With constant access to the most current technology via a browser, software "upgrades" and technology obsolescence become much less threatening. The only thing left to upgrade is the browser.

Outsourced service offerings allow companies to have software licenses, hardware, database administration and IT services -- including deployment and training -- all included in a fixed monthly service fee.

In addition, outsourcing allows companies to choose applications based on functionality and usability without being constrained by technology and IT support requirements.

Rapid and Flexible Deployment

Companies often opt for a hosted application because it allows for rapid implementation, greater flexibility in deployment and hassle-free scaling. Often, such hosted applications can be up and running in only a few days. As a client grows, the service can scale from a single location to a nationwide, multi-site deployment in a matter of days.

There may be instances when a company prefers to bring their outsourced application in-house at a later date. Providers often deploy standard products using an ASP model such that customers can migrate from an outsourced service to an in-house service (and vice verse) very easily, without the need for costly data conversion, implementation or training.

Low Initial Investment

Outsourcing applications is an attractive way for companies to deploy powerful functionality from the desktop without requiring a significant, up-front capital investment.

With traditional software, when firms want to automate their business processes, they are required to make significant investments not only in software but in the hardware and IT staff to support the applications. These capital expenditures can become prohibitive, especially for fast growing, cash-constrained firms, and often prevent the adoption of new technology.

With a hosted application, however, companies experience very low start-up costs, pay only for the actual usage of the service and can scale the service to reflect the growth of the user base and volume over time.

Additionally, a company doesn't pay for unused licenses and need not over-commit themselves for anticipated future growth. Pricing of outsourced applications is simple, predictable and usually consists of a monthly subscription fee based on usage and volume. The result is often lower ongoing total cost of ownership for the application and an excellent defense for technical obsolescence.

Conclusion

While still in its early days, the applications outsourcing industry is becoming increasingly important as companies of all sizes are seeking to deploy strategic technology solutions like recruitment automation, supply-chain management and customer relationship management. Outsourcing empowers companies to take full advantage of technology innovations while minimizing IT costs and headaches and allowing them to focus on their core business.