Are you ready to be served outside your four walls?

Are you ready to be served outside your four walls?

The application service provider is a combination of service bureau and Internet provider, and it is already changing some industries.

By Paul Montgomery

You might be thinking it's just a return to the old days of clunky mainframes and data centres. Sceptics label the application service provider (ASP) as an inherently flawed idea which hearkens back to the bureau style of centralised information storage. That idea went out in the 1970s, didn't it?

Wrong. The Internet has caused a rethink of how outsourcing and data centres can operate, and the result is a concept which has its roots in thirty-year-old practices, but makes use of new business models and modern technologies. The Internet has had its effect, as in so many other fields, but it is not the only agent of change. Innovative host access technologies are also opening up more potential for sending corporate application data over compromised, low-bandwidth networks.

The basic model for an ASP is this: instead of building your own air-conditioned server room with multiple applications running with redundant back-up storage options and communications infrastructure, you let someone else do it. All the customer organisation needs, theoretically, is a local area network of PCs with Internet access for each department. The ASP's set-up looks just about the same as yours, except everything is bigger, because they are not only replacing your company's IT infrastructure, they are doing the same for scores of other businesses.

"What is happening is a switch, a movement from that archival process to a live data process."

The reason why this works for the ASP is the friend of every Internet business: economies of scale. It can charge you less for what you pay to maintain your present system, and it retains a profit margin because it doesn't have to buy a new server for every new customer - it just adds the load to its existing system.

"The ASP model offers technology that wasn't affordable to organisations [previously] who now can afford it because of the economies of scale that they get, the centralisation and the elimination of some of the sophistication," said Craig Hawkins, managing director of one of the new ASP players, BDO Synergy IT. "Not as obviously, it eliminates some of the politics and some of the unnecessary difficulties that go with internal IT organisations building mystery and magic where it shouldn't really be that difficult."

That's all very well for the ASP. But what about you? How do you justify the risk of abandoning the way you have run your IT systems for decades?


Paul McQuarrie, MD of MUA, said that people he had talked to about moving their IT operations to MUA's ASP data centre had two major fears, with the primary technical obstacle being security.

"What is much more emotional is not having their data within their four walls. They feel like they have no control on their data because they can't put their finger on it. That's a fair and reasonable thing to think," he said.

Bob McAnderson, national marketing and sales manager for imaging service bureau Intercept, said that in the hundreds of discussion he has had with potential ASP clients, no two situations had been the same, but the primary business driver has been reducing costs (Intercept is partnering with BDO Synergy IT to provide its Image Silo software as part of BDO's service). Apart from the drop in costs for licensing software, Mr Hawkins said the removal of the need to service bulky PCs with fat clients for imaging applications meant that total cost of ownership could be cut from $9000 per PC per annum to as little as $2500.

A secondary reason is ensuring that no records are lost within the company, something which is particularly relevant to financial records. In the case of clients like Smith's and Transfield, BDO Synergy IT can match transactions from SAP against images of financial documents to create a more robust system. Transfield processes $1.2 billion worth of accounts payable records annually in a wide area network with 15 users.

This issue sometimes comes to a head when a records manager or financial controller is suddenly made the scapegoat for a failure or loss from the existing internal applications.


"Senior management says to the guy, what's wrong with your system? You can't guarantee that we can collect our funds. The business driver suddenly becomes, how do we get a system in place that gives us control," said Mr McAnderson.

On a more positive note, using an ASP can also speed up a company's processes, so that if it outsources the management of invoices, for example, it may improve its cashflow when they are sent out and processed more quickly. Taking the load off the internal staff also frees them up to be more constructive in their day-to-day work - Mr McAnderson said that outsourcing to an ASP had not meant any staff losses for their client's IT department. /p>

The business drivers for ASPs are particularly pertinent to imaging projects, according to Mr Hawkins, because images clog up a network more than most applications if deployed inside the corporate firewall.

In fact, the imaging service bureau can be seen as a forerunner to the ASP. While the bureau's role has been to handle the input process, then deliver the data in digital or microfilm format back to a company's IT department, the ASP has allowed some companies to become more ambitious.

"The imaging service bureau in Australia has traditionally performed the image capture function and then put a halt to it," said Mr McAnderson. "The bureaus generally don't compete against the FileNETs or Tower Technologies, because those guys are offering multiple thousand dollar in-house systems. What we're doing here for the first time is saying you don't need to spend that dollar, there is an alternative which is quicker, easier and more effective."

A bureau business has traditionally been a mere support structure for an organisation's internal IT department, and in the case of imaging this has meant that while a company handles live transactions within its own infrastructure, putting three- to six-month-old archives in near-line storage has been left to the bureaus. Mr McAnderson said this has turned around with the advent of the ASP model, and imaging is becoming a part of the daily data processing landscape.

"What is happening now is with one client like Smith's is we're getting weekly transactional updates out of their SAP system," he said. "The paperwork is hitting us that same week for imaging and matching and merging and posting in Image Silo. Smith's has the capacity to view those images within a week of the document having been transacted. What is happening is a switch, a movement from that archival process to a live data process."


One of the main questions to resolve when choosing an ASP, or even deciding to contract one in the first place, is how your organisation's offices connect to the ASP. This is particularly important for companies which have many far-flung offices around and/or outside the country.

Paul McQuarrie of MUA said that the ASP model could not have been taken to the small business community before the advent of the Internet, because the cost of maintaining leased telecommunications lines to ensure a fast, secure connection to the ASP's premises, plus the added software licensing charges, made the system prohibitively expensive.

"They don't want to have to pay the 'flag fall' to get the server installed," he said. "The software developers said to go down market with three- to five-user licenses. Two or five years ago, that wouldn't have flown because clients were not connected to the outside world. To have a connection to a bureau service, as an ASP is, would have required something like Telstra's reliable but expensive DDS network."

Some of the promised cost savings evaporate for small businesses, especially if they choose to rent a leased line instead of relying on modems and the public switched telephone network (PSTN). Even though the bandwidth requirements for multiple users tapers off as the number of clients rises (see table above), once the customer wants to connect anything more than a small LAN, analogue modems will not suffice.

However, some ASPs have abandoned the PSTN entirely because they cannot guarantee quality of service. This takes the ASP model back to the existing bureau mentality, but until Australia upgrades its telecommunications infrastructure to current US levels with similarly competitive pricing, ASPs which want to provide a fully managed service will not rely on the open Internet. The prospect of letting hackers get access to corporate data is also worrying some providers.

"We do not see the Internet as a viable vehicle for delivery of mission critical applications at this time due to the vagaries of performance, reliability and security," said Neil Richardson, MD of another ASP called Managed IT.