What's Up With ASPs?

The hype, the benefits, and the risks of working with application service providers.

IF YOU'VE BEEN AVOIDING THE APPLICATION SERVICE PROVIDER (ASP) MODEL because you're thinking it might meet the same fate as the dot-com model did in 2000, you may want to think again. International

Even if you believe that the accuracy of such industry hype may mirror the early--and often unwarranted--mania for dot-com companies, it's important to understand the concept of the ASP and what it could mean to your association operations.

New economy, new delivery model

At the same time that associations are challenged with figuring out how to compete with for-profit companies in providing unique value to their members and customers--usually externally via their Web sites--the ASP model has arrived with a new way of business that directly affects how associations will internally manage their member and customer information.

ASPs, also referred to as application outsourcing, hosted applications, and webifying applications, are service providers that offer access to software applications and services over the Internet, virtual private networks, or leased lines. In the ASP model, rather than accessing, maintaining, and updating its association management software system from its own servers, the association outsources the entire process to an AMS vendor, which in turn may contract with a third-party to actually provide and host the AMS software and data. If an association is not ready to take this step, it can continue running its AMS software in-house, while selecting individual ASPs that offer specific applications (accounting systems, meeting management, and so on) that the association might not otherwise be able to offer due to the commitment of time, resources, and up-front costs. (See companion article, "ASPs A La Carte," for a discussion of individual applications that are offered via the ASP model.)

This article focuses on the ASP model as it relates to associations and their AMS vendors--both those that have, from the outset, designed AMS for delivery via the Web, and those that have traditionally designed the association's AMS software to be available on the client's own servers. Predictably, the latter are currently retrofitting their business models to incorporate the ASP model.

Historical perspective

Anyone paying attention to technology development during the last 20 years will find that the ASP model looks strikingly similar to the old service bureau model of the 1980s. During that time, data were centralized; and personal computers (PCs) were only in their infancy. Many associations, particularly those with a large number of members, accessed their data over a dedicated phone line to the service bureau manager, who directed the centralized processing functions. Association staff used dumb terminals, which were merely data input devices that had no processing capacity.

With the introduction of the local area network, the association databases were brought in-house and stored on everyone's desktop. The information technology (IT) fashion of the 1990s was data decentralization, however, with the processing power shifting to the PC.

But with the exponential growth of the Internet, which enables networking of computers, greater bandwidth to transmit files of information from one computer to another, and a common user-interface through the Web browser, the pendulum has again swung toward centralization. The new millennium has begun with a call for the centralization of almost everything (applications, data, upgrades, and so on) on ASP Web servers. When this centralization is accomplished, association staff can then access association information through browsers on their desks or from any location, on any device, through any network connection.

Traditional versus ASP

The major difference between the ASP and the traditional provider is that the ASP hosts AMS applications (or outsources the hosting to a third-party entity), while the traditional vendor installs those applications on the association's in-house servers.

An ASP can offer many services, but to be considered a true ASP, it must provide access to the AMS applications and perform system upgrades and database backups. An ASP can also customize the AMS software, convert data, provide support for these applications, develop reports for staff, provide training on the AMS applications, and host other applications such as accounting.

Traditional model. Most association executives have no doubt been involved in the development of the typical association management system, consisting of a number of modules such as membership, event management, committee management, and so on. While there are several different methodologies for evaluating and purchasing an AMS, a common scenario is that an association identifies its requirements--often through a needs analysis--develops a request for proposal, looks at demonstrations of the software, and then selects the vendor with software that best meets the needs of the association. Upon selection, the vendor develops a payment schedule tied to deliverables. The association pays a substantial deposit and pays the remaining balance at different milestones over the course of implementation--paying any balance due when the system goes live.

The AMS software resides on the association's server(s) and staff access the applications through a direct connection to the server(s). The AMS vendor provides updates to the software (unless the software is customized) on anywhere from a quarterly to an annual basis. The association's IT staff is required to support the AMS applications (such as membership management and dues billing), maintain the in-house network, troubleshoot PC and printer problems, and develop reports for staff who access information from the AMS system.

Important to a proper distinction between the traditional AMS acquisition and that provided by the ASP model is the clarification of the misconception that, through the traditional purchase model, the association actually owns the AMS. Purchasing an AMS system means that the association receives from the vendor a license to operate the AMS software for internal use. The association, as a licensee, is not permitted to let any other entity (subsidiaries, third parties, and so on) use the AMS software. Nor can the association modify what is generally referred to as the source code of the AMS. The association does not own the AMS (or sometimes even the documentation that accompanies the product), but rather, purchases a license to use the AMS. (Check your acquisition agreement and note that the definition of the vendor as a licensor and the definition of your association as the licensee appears in the first section of the document.) So while the temptation to differentiate the traditional acquisition model from t he ASP model is own versus lease, the true descriptors should be license versus lease.

ASP model. When considering working with an ASP, association executives must do similar research as they have done for selecting traditional AMS providers. Obviously, some of the business decisions will be similar and will be driven by similar questions: Does the software meet my needs? Is it easy to use? How difficult is it to make modifications? And so on. Understanding and analyzing the ASP market, however, is critical (see sidebar, "Crash Course in ASPs," for more information) as there are some new risks associated with such a model. Of importance also is the differentiation between traditional AMS vendors who are moving into the ASP market and new entrants to the market that may also be new to the association industry. While the latter may represent an equally competent vendor, you will want to be confident in the ASP's level of understanding of the association market. Don't hesitate to request a list of association clients.

An additional consideration has to do with the skill set of the association's IT staff and the impact that an ASP would have on the roles and responsibilities of the IT department. Migrating to applications housed at an ASP will definitely create an impact on the structure of the department, a reality that will be discussed later in this article.

When it comes to cost, the pricing for the various aspects of the ASP's services are more likely to be calculated on an a la carte basis. For example, up-front costs might include a one-time set-up charge to host the Web site and to install the AMS module on the ASP's server, an AMS conversion charge for the software to be Web-enabled, and a fee for project management support. Monthly charges apply to leasing of each module or application as well as hosting of the Web site and software modules. In addition, the association must retain its local service agreement for equipment repair and its annual software support agreement. If it does not already have it, the association must obtain and pay for high speed Internet access and supply Web browsers for their PCs.

As with all potential partnerships, it's wise to conduct due diligence when considering a particular ASP-to be certain the complexities of the model are understood. Some specific questions to ask the AMS vendor that is offering the ASP model include

* Where will the AMS software and clam be stored?

* How frequently will backups be clone and where will they be stored? Does the ASP have a disaster recovery plan in place?

* Will upgrades to the product be offered on a similar schedule that the association has had in place in the past?

* Will the association be sharing a server with another organization? If so, will there bean impact on the association's control of scheduled operations?

* What is the percentage of downtime to be expected? Does the ASP have redundant paths to the Internet in case one Internet connection fails?

* What is the anticipated performance based on the way the association currently accesses the Internet? Will the ASP monitor your applications for performance based on standards that the association has set?

* Will you be able to obtain your membership and financial data out of the current system if you should transfer to a new system--or if the ASP should go out of business?

If your association is considering moving to the ASP model using your current AMS provider, the decision factors are much the same as those considered when moving to a new ASP. Obviously, the association has already gone through the evaluation and selection process. However, you still need to look at the roles and responsibilities of your IT department and ask the same questions of your existing AMS provider that you would a new vendor when it comes to migrating your AMS system to the ASP model.

Somewhere in between

In working with Meeting Professionals International, Dallas, we're finding that, as is often the case with new business models, reality drives revisions. Brian Kinsella, MPI's chief operating officer, says, "We are definitely considering migrating our client-server AMS system to a Web-based system. However, we are not comfortable with giving the keys to our association kingdom--our member database--to an outside vendor. We will never relinquish the control over the data that our members have entrusted to us. This means that we must look at a number of scenarios that differ from what the typical ASP has been offering."

In one scenario, MPI would allow their data to reside on an outside server, but would require that the data be segregated from the data of any of the other clients of the ASP. "One of the vendors that we are talking to," says Kinsella, "shares our philosophy, but we still need to observe that in concrete reality. We have found that a number of vendors are willing to work with us on trying to modify their existing model to accommodate our commitment to controlling our data. But the task isn't a trivial one in terms of making the technology work. Not to mention the fact that the underlying premise for a cost-effective ASP solution is that of providing a somewhat generic package to many clients so that the cost can be shared among them."

During a recent panel discussion for the meetings industry, explains Kinsella, "We agreed that our advice to association leaders when thinking about ASPs is to start with what business process or member service that you want to automate. Think about what business functions you want to add, facilitate, or make more efficient. In the cloud of all the jargon, don't lose sight of your business purposes.

The ASP advantage

While ASPs are quick to list numerous advantages to implementing an ASP model, the benefits can be boiled clown to three general categories: staff savings, other cost savings, and increased competitive advantage.

Staff savings. Reduction in payroll is the most frequently heard argument for moving from a purchase model that requires IT staffing to an ASP model that theoretically does not require--or at least minimizes the need for--IT staff. For example, the ASP takes over the responsibilities of the in-house IT staff by performing database administration, producing reports, installing upgrades, and completing backups.

If some or all of the association's IT staff is retained, they can focus on strategic technology issues rather than being bogged clown in routine maintenance. With the ASP managing the day-to-clay activities, IT staff can be free to work with other department managers and staff to create new member value, such as enabling members and chapters to track information online.

An association that we are working with now is doing something along those lines. They are moving to an ASP model using their existing AMS vendor. In doing so, they plan to support their 70 chapters more aggressively than they have in the past by managing all the registrations for each chapter conference with an automated online system. This will provide tremendous value not only to the chapter leaders, who will benefit from the system's efficiencies, but to members who now will be able to register online for chapter meetings. In addition, the IT staff will gain time to track member participation at the local level, enabling them to target new products and services, Because the ASP will provide association leadership with immediate access to registration statistics, they'll be able to plan space better, send follow-up marketing materials, and so on. Since chapter leaders now can identify new members, they can send special welcome notes even before a new member kit is mailed out. It's all about timesavings, a dded value, and immediate and personalized service.

Finally, associations are facing tremendous competition for IT staff from clot-coms and other for-profit companies, with turnover in IT positions at a record high. ASPs have the allure of minimizing concern over hiring and retaining IT staff.

Other cost savings. An association using an ASP does not have the high initial capital outlay required to purchase an AMS. Leasing the software, especially for smaller associations, means that they have equal access to high-end applications as larger associations with more complex requirements. Cash barriers to acquiring technology are eliminated. Knowing what the expenses are going to be with an ASP makes budgeting much easier than purchasing software, planning for expensive upgrades, and so on.

In addition, using an ASP means that the association does not have to purchase expensive desktops and worry about replacing them every two or three years. To access the ASP, employees need only a low-end PC or a terminal that can run a browser--unless, of course, they wish to run other software packages not provided by the ASP. The association will, however, require high end communication lines.

Competitive advantage. With the responsibility for maintaining hardware (primarily the servers) taken by the ASP, the association leadership can spend its time and resources developing strategies to effectively compete. The focus shifts from managing routine technology operations to supporting the core business of the association--delivering enhanced value to its members and customers.

Risks and concerns

With the challenges of hiring and retaining IT staff, spending budget dollars wisely on member benefits rather than internal operations, and strategically positioning the association to effectively compete in the new economy, the ASP model might appear to be the silver bullet. But there are dangers--some hidden and others more obvious--in opting for an ASP model.

Loss of control. As Kinsella has articulated, the biggest fear in selecting an ASP model is the loss of control over the association's data. Without exception, the association's most important and valuable asset is its data--information about members, prospects, and other constituents that interact with the association. Outsourcing the applications and the data to an ASP raises the risk of exposing these assets--through a breach of security--to a higher level than if the data were to reside at the association's location.

Related to the loss of control is the issue of availability of the data. The ASP depends on the Internet Service Provider (ISP) for access to the Internet. The association now faces two potential sources of downtime: delays in accessing the applications and data stored at the ASP site when the site is slow or down altogether and similar delays in accessing the applications and data through the ISP for the same reasons.

There are other control issues. For example, associations that maintain their AMS system in-house individually determine the times when they will perform routine database maintenance so as to minimize disruption of staff work and of the business operations of the association. An association using an ASP may not be able to register attendees for its annual meeting because the ASP or ISP is running maintenance routines or upgrading the software on the ASP-driven time schedule rather than its own.

Support issues. Consistent and high quality support for the AMS is a major concern for any association and is most easily managed when there is one vendor providing all services and products. With an ASP model, the association might have to juggle a number of third-party vendors--including a network services provider, an ISP, the association management software vendor, and a hosting provider (if the AMS vendor outsources the data or applications). This list does not include management of products typically provided by third parties, such as accounting or government relations management packages, which associations often purchase to integrate with their AMS systems. The association must now have the staff and time to manage numerous vendor relationships that, even when working smoothly, can be arduous. When a problem arises, the association must act as the troubleshooter to determine the originator of the problem, the rippling effect on the services and products of other vendors, and how the problem can be res olved.

Performance. Maintaining a high quality and well-functioning site can be a major hurdle when using the ASP model. When a staff member wants to access data--for example, a member record--the request goes over the wire to the association's AMS, residing on the ASP's server (or other hosted server). The ASP's server sends both the application and the data over the wire. The fastest response time for the request is dependent on the slowest link in the communication chain. For ASPs, the slowest link is network speed. Anything below 56K is unacceptable; a broadband Internet connection is required for reasonable response time, so be certain that you have 20-40K bandwidth per user.

Unlike other vertical industries where software developers have access to deep pockets for research and development, most AMS vendors typically bootstrap new technologies by profiting from or partnering with larger companies that complement their offerings. This may result in a business decision to place a legacy AMS product behind a front-end user interface rather than to write a new product for new technology, such as Internet-based AMS products. A legacy back-office database, for example, might be so rigid and proprietary that data exchanges between software products are difficult. Therefore, it is important to confirm that your proposed ASP partner does not sell a backend legacy AMS product with a browser-based front-end application, but creates new Web-based software tailored to the needs of the association and its AMS system.

Unproven models. Like the dot-coms that proliferated the e--commerce marketplace in 1999 and 2000, the ASP vendors in early 2001 are still unproven. Unrealistic sales forecasts, lack of infrastructure, concerns about security, poor marketing, and dismal customer service left many venture capitalists with holes in their funding pockets-and reluctance to continue supporting clot--coins when they came calling for their second round of venture capital. Time will tell whether ASPs walk this same path--and consequently the selection of an ASP comes with a certain amount of risk.

Meanwhile, working with traditional vendors will have its own challenges. Even though traditional AMS vendors have structured their business around the old-economy model, the advent of the ASP model spells big changes for them as well. Many will want to respond to their existing clients' interest in adopting the new model, attract new clients with the same interest, and move forward with an evolving technology solution that may take firm hold, leaving some of the traditional operations behind.

Many AMS vendors have a large installed base of software, a defined product line, and staff trained in particular processes. Shifting to an ASP model requires significant internal restructuring. This may include

* developing new skill sets for staff;

* making changes to AMS products;

* developing new products written specifically for the Internet;

* ereating business arrangements with other third-party providers, including [SPs, to provide Internet connectivity;

* developing different acquisition and support contracts; and

* building new fee structures to accommodate leasing arrangements.

At the same time that ANIS vendors are making internal revisions supporting the transformation to ASPs, they are rewriting or developing a completely Internet-based AMS that will be deployed in 2001. That said, if you are using a traditional AMS vendor, don't be surprised if these changes have an affect on your current arrangements--and be prepared to take advantage of the benefits, while being careful to evaluate changes in support, fee structures, and so on.

When it comes to unproven business models, AMS vendors will face some of the same challenges as newly minted ASPs. Changes in their product line and a revision in the way they do business will have AMS-vendors-turned-ASPs contending with how to educate their customers as to the pluses and minuses of the two models. In cases where vendors boast an AMS product line that the association can totally customize, for example, their ASP solution may (depending on the vendor's approach) require broad standardization of applications across their customer base to be effective. This may require a certain leap of faith on the part of the association. At the same time, standardization of the AMS product line can mean better technical support, easier upgrades, reduced cost, and access to new technologies.

Some vendors will make this transition smoothly and profitably, while others will struggle. Those who fail will disappear from the market or be the target of acquisition. Due diligence--when considering ASP solutions from the traditional vendor or the new ASP--takes on a more significant role than ever before, as associations must determine how they can best protect themselves when product lines are changing, business models are transitioning, and new players are moving into the market. (For a detailed explanation of how associations can reduce the risks of Internet related ventures, see "Law and Order on the Net" in the March 2001 issue of ASSOCIATION MANAGEMENT.)

The future of ASPs

With the exponential growth of the Internet, increased speed for data access, and improved online security, ASPs will likely come to be the dominant model that organizations use to manage their information in the first decade of this new millennium, As with many other technology developments, it will undoubtedly be a wild ride getting there. And as with other partnerships and business relationships that association executives find themselves negotiating, knowledge and due diligence are the keys to effectiveness.

What should associations be looking for when considering ASPs? "I would caution association executives," says Kinsella, "not to turn a blind eye to ASPs. The general trend of Web-enabling your applications has blown the bolts off of the whole AMS market. Even if you are perfectly happy with your existing client-server setup, it won't necessarily remain the same--as traditional AMS vendors go through a transformation that reflects the deep impact of this major technology trend."

Kathy Krajewski is president of Krajewski and Associates, Technology Strategists, Frederick, Maryland.

                            ASPs at a Glance
FEATURE                                            ASP
Provides regular system backups                    Yes
Provides automatic upgrades of productivity
software (i.e., Micrsoft Word, Excel, and so on)   Yes
Requires high up-front costs                       No
Makes budgeting for IT expenses easier and
more predictable                                   Yes
Requires high-speed communication to the ASP       Yes
Requires higher performing desktop PCs             No
Typically reduces staff overhead                   Yes
Generally reduces equipment overhead               Yes
Requires local hardware support for desktops
and printers                                       Yes
More easily provides the ability to access the
AMS from remote offices (e.g., chapters, states)
without building IT infrastructure                 Yes
Provides "full service' IT service including
AMS hosting, Web site hosting, and hosting of
office-based applications such as word processing  Yes
Often elicits concerns about control/ownership
over data                                          Yes
May create concerns about member privacy           Yes
May experience inconsistent or poor system         Yes
performance (response time)
May not be currently available for the desired
AMS system                                         Yes
Requires AMS annual support agreement              Yes
Requires the  need to develop an exit strategy
with the ASP in the event of dissolution of
the ASP vendor                                     Yes
FEATURE                                            TRADITIONAL
Provides regular system backups                    Depends on staff
Provides automatic upgrades of productivity
software (i.e., Micrsoft Word, Excel, and so on)   Depends on staff
Requires high up-front costs                       Yes
Makes budgeting for IT expenses easier and
more predictable                                   No
Requires high-speed communication to the ASP       No
Requires higher performing desktop PCs             Yes
Typically reduces staff overhead                   No
Generally reduces equipment overhead               No
Requires local hardware support for desktops
and printers                                       Yes
More easily provides the ability to access the
AMS from remote offices (e.g., chapters, states)
without building IT infrastructure                 No
Provides "full service' IT service including
AMS hosting, Web site hosting, and hosting of
office-based applications such as word processing  No
Often elicits concerns about control/ownership
over data                                          No
May create concerns about member privacy           No
May experience inconsistent or poor system         Somewhat dependent
performance (response time)                        on staff
May not be currently available for the desired
AMS system                                         N/A
Requires AMS annual support agreement              Yes
Requires the  need to develop an exit strategy
with the ASP in the event of dissolution of
the ASP vendor                                     N/A

Crash Course in ASPs

Can't tell an ASP from an ISP and are wishing you had ESP to help you (and your association) make an informed decision? Here is a guide to a wealth of information on the Web to help bring you up to speed on the hottest technology trend-application service providers.

The already multibillion dollar ASP industry-which is expected to grow to anywhere from $25 to $150 billion within the next four years depending on who you ask-offers a unique and low-cost remedy for associations looking to save money on software solutions. ASPs allow customers to run various Web-based applications by leasing the AS P's equipment and services from a remote location.

The advantages of an ASP model are numerous-save money on the front end by leasing rather than licensing software, provide enhanced security, access applications from any computer connected to the Web, and support a smaller technical staff. But with those advantages comes the risk of placing your association's most valuable information in the hands of a techie newcomer to the ASP industry.

Lower that risk by becoming a well-informed consumer. Visit these Web sites to find out more information on ASPs and the big players in the industry.

www.itaa.org

The Information Technology Association of America's Web site tackles the task of defining the ASP industry and works to expand your knowledge of it with headlining articles; ASP Webcast discussions and past transcripts; and the weekly ASP Advisor newsletter, a product of a partnership between the ITAA and the International Data Corporation (IDC). Deports and white papers by respected outside organizations such as Legg Mason, Agilera, and IDC are available for purchase. Downloadable market surveys and industry research reports give a quantitative consumer-end view. Daily news postings from ASPIndustryNews.com reflect the current state of the ASP industry.

www.aspisland.com

This site offers up basic, no-frills definitions of the components and partners that makee up the ASP system, including a graphic model of the service flow of a typical ASP business model. It also gets down to the nitty-gritty by hosting online forums covering the industry; offering an online panel discussion hosted by 20 leading service providers that answer reader questions on the topics of security, performance and reliability, and support and responsiveness; and hosting a reader-supported listserver focused on predictions for the ASP industry.

www.aspscope.com

Billing itself as the "complete application service provider resource," this site packs quite an information punch. Content covers industry trends; ASP issues applicable to associations; analysis of the impact ASPs would have on various departments in an organization; and a list of the top 25 ASP providers each month, as judged by the reliability and comprehensiveness of their service. Future site developments include an interactive service called ASPMatch that surveys association's particular needs and anonymously matches them to ASP providers, set to debut in Spring of 2001.

www.aspnews.com

Analysis of the - ASP industry in the form of industry newsletters. ASP profiles, and special reports on business and technology trends is the hallmark of this site. The ASP Basics section will leave even the most uninformed feeling prepared to take on the newest technology, with its clear definitions and diagram of the ASP Value Chain, which explains how the different types of suppliers work together to create individual ASP solutions. Aspnews.com also offers event listings, classified ads, and a directory of more than 1,000 vendors and products.

www.aspstreet.com

This site's resources section includes frequently asked questions for ASP novices and more than 100 articles addressing a variety of current issues in the ASP market. The online forums cover topics such as up-and-coming applications, ASP-related business, technical aspects of moving to an ASP model, industry benchmarks and strategies, and basic questions about ASPs and their effect on organizations. A list of events and job ads, contact information for some 10,355 companies in its ASP Directory, and a free weekly online newsletter round out the site. It also hosts the search engine ASPseek.com, which searches ASP-related sites only, keeps track of changes on those Web sites, and offers access to an interactive structured directory of companies.

www.aspindustry.com

The ASP Industry site is dubbed All About ASPs-and it delivers what its nickname promises. A glossary, industry news section, current articles, and a surprisingly comprehensive FAQ section will answer most lingering questions. The market and investment research sections give an in-depth look at the role and impact of ASPs on the application market. The End User Resources section offers educational materials about buying and working with ASP services.

Still not feeling up to speed? Take the time to read Carole Schweitzer's companion article "ASPs A La Carte" for insights into the ASP trend and its impact on associations. When you feel fully informed and ready to consider what specific ASPs can offer, start your search for the ideal provider in the Technology Solutions Directory in the June 2001 issue of ASSOCIATION MANAGEMENT.