The current trend to use Application Service Providers (ASPs) will flourish because ASPs can achieve very real economies of scale.
"In technical terms, this is a trend that goes beyond technology fashion since it delivers undeniable business benefits," says Rick Parry, MD of Progess South Africa.
Progress and IBM recently teamed up internationally to assemble a portfolio of ASP services that Independent Software Vendors (ISVs) could introduce into their relationships with their customers.
"IBM and Progress intend to act as the ASP to the ISV," Parry says. He defines an ASP as a company specialising in providing access to the Internet and associated services, such as the hosting of web sites. "An ASP is similar to an ISP except it also offers access to some or all of the business applications that a company runs.
"The ASP model can also be seen as a side-effect of the Internet, involving collapsing of the software supply chain."
Parry believes the advantages of the ASP model to IT users are various but most of them come down to the fact that an ASP service reduces the cost of running applications. "IBM and Progress expect the cost for running an application through an ASP rather than in-house will be lower by around 30%."
This, he says, happens as a result of reducing the cost of easily identifiable items, which he summarises as follows:
The customer gets some of the benefits available to very large sites in terms of bulk buying of hardware and software - reducing the cost and complexity of most items.
The customer gets a consistent service level which can be the subject of specific contractual commitments.
The customer achieves the economies of scale associated with support that large sites and technology providers can deliver.
The customer no longer needs to acquire or develop skills in IT areas - from user training through to network management.
"The effects of the widespread IT skills shortage can thus be alleviated by moving to an ASP service," Parry comments.
In addition, he says, by choosing an ASP service the customer rents software and no longer needs to handle IT as capital expenditure. "Although this is not a saving it is a more convenient way of financing IT."
Parry warns, however, that there are a number of risks and limitations in using ASP services:
Loss of control: if companies run their IT establishments they have a level of control which they cannot have if someone else does it for them, no matter how broad the level of service.
Service risk: If companies adopt an ASP service that proves to be unreliable then it could be very damaging to a business.
Flexibility risk: An ASP takes technology decisions in choosing software and hardware that it deploys on behalf of its customers as a group.
"This `aggregated` decision may work against the evolution of the IT capability of some customers. There is thus a minor flexibility risk.
Generally an ASP service is likely to be less expensive than running an application in-house.
For some software users, the economic benefits of the ASP option may be obscured by a number of hidden costs that mask the true cost of running applications in-house. He advises software users who are considering an ASP service to carry out realistic costing exercises
"Although an ASP service many not always be the best choice, it will become a compelling option for many applications," Parry says. "Thus we can expect the ASP market to grow quickly and become very large."
He believes small to medium sized businesses are likely to lead the adoption of ASP services because of the type of applications that they run Parry concludes that IBM and Progress are well positioned to be a major force in the ASP market because of their extensive joint capability and strength in this market area.
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