Just as a person of modest income might find a way to live within sight of the breakers on La Jolla’s Coast Boulevard, businesses with limited resources are finding a way to harness sophisticated, high-priced software applications.
In both cases the solution’s the same.
They rent.
Software applications are available over the Internet from application service providers, or ASPs. Frequently customers “pay by the drink” , by some sort of increment that measures how much they use the software.
In some cases it can be more attractive than spending six or seven figures on an application, plus the system to run it on.
San Diego companies of all sizes have taken the plunge as application service providers.
K. Linda Rose & Co., a 12-person accounting firm that helps companies select and implement financial systems, recently introduced a sister company to host such applications for faraway customers. RoseASP has about 70 resellers, offering applications from Great Plains, Solomon, Sage, Siebel and San Diego’s Maxwell Business Systems, Inc.
Customers have been requesting software via RoseASP over the past 18 months, said company principal Linda Rose.
– A New Package Of Telecom Applications
San Diego-based Science Applications International Corp., which has roughly 41,000 employees in a spectrum of high-tech fields, recently brought a package of telecommunications applications to market, aiming to sell them to small and medium-sized carriers , including nontraditional ones like utility and cable companies.
SAIC is also moving to offer enterprise resource planning software over the Internet.
“You cannot offer partial services,” said Bob Young, senior vice president for SAIC’s Systems Integration and Convergence Systems Group, who oversees the ASP services.
Local software makers offer their products as ASPs, too. Peregrine Systems sends its infrastructure management software to customers via the Internet, giving them subscriptions with the option to buy. Recently announced customers include Texaco, Farmer John and Dayton Power & Light.
Companies at least want the option of getting their software from an ASP and sometimes will not consider a vendor without that option, according to Peregrine’s director of product marketing, Pelin Wood.
HNC Software , whose products include applications that prevent fraud by predicting customer behavior , is another local company offering some of its software as an ASP.
– Companies Make Transition To ASPs
Many “old-style” software companies are making the transition to becoming ASPs, said Bruce Hansen, president of HNC’s financial solutions division, during an appearance at a San Diego Software and Internet Council discussion on ASPs last month.
ASP services are growing rapidly. The Framingham, Mass., research firm IDC estimates more than $296 million was spent on ASP services in 1999. The number is expected to reach $633 million this year and $7.8 billion by 2004.
Yet the $7.8 billion number needs to be seen in perspective, said IDC senior analyst Amy Mizoras, noting it represents less than 1 percent of overall information technology spending.
ASPs often target mid-sized companies but often attract large ones, Mizoras said. Companies experiencing sweeping change or going through rapid growth may use ASPs, she said, giving the example of companies working in the deregulated financial markets.
Government, which tends to outsource services, uses ASPs too, she said.
SAIC’s Young said companies looking to keep their “burn rate” low buy their applications through ASPs.
A shortage of information technology professionals has also made ASPs popular, Mizoras said.
“We’re renting the application, we’re renting the hardware for all intents and purposes, and we’re renting the IT experience,” Rose said.
Updated software often means new hardware, Rose said. Then there is the cost of having a system administrator or a network administrator on staff. An ASP user does not have to face those expenses, she said.
An ASP can also provide the benefits of software updates without the headaches, said several sources.
One more advantage of the ASP model, according to several sources, is that it gets the application up and running quickly.
Still, some ASPs, software makers and even customers may not quite be ready for prime time.
Like dot-com companies, ASPs can shut down, said IDC’s Mizoras. Customers look for staying power in their providers, she said, adding that a frequent question she gets during speaking engagements is what a customer is to do when their ASP shuts down.
– Not All Software Fits ASP Model
Often software is not built well for the ASP model. “We’re finding a lot of holes,” said SAIC’s Young. Negotiating for software licenses is also uncharted territory for many, he noted, adding that like customers, SAIC will “pay by the drink” when reselling applications.
While Rose has introduced ASPs to meet demand, the head of the 9-year-old company said she has also met her share of doubtful prospects.
“Some people feel, ‘Well, since the data’s not in my back room, it’s not secure,'” said Rose, who houses her servers at the InFlow, Inc. data center on Sorrento Mesa. “The reality is the data is more secure in our data center , from a variety of aspects.”
Not only are servers in locked cabinets, behind locked doors; they are also regularly monitored, and equipped with backup power and redundant phone lines from several carriers.
Panelists at the Software and Internet Council forum also defended the safety of accessing ASPs over the Internet. “Practically missile-proof” is how Peregrine’s Wood described her company’s offering.
The alternative , storing a server in the back room , is not necessarily a secure option, Rose added.
Rose also noted the East Coast is a tough sell because of dependability concerns.
“I think there’s an ill-conceived notion that your data needs to be within driving distance of you,” Rose said. “The reality is your data could be in another country and it’s fine. You can still access it as quickly as if it were next door.
“I think our biggest challenge is really education,” she said.
