The ASP Twist

Just when the average businessperson was beginning to feel comfortable with the many faces of automation, along came the Application Software Provider or ASP. ASPs emerged in the late 1990s to provide businesses with software by subscription, meaning software that is rented or leased, rather than purchased. They deliver this software over the Internet, by satellite, frame relay or other means.

ASPs work in a variety of formats. There are pure-play ASPs, typically suppliers that partner with Internet Service Providers or ISPs, or other connectivity sources to provide total technology solutions to clients. This could include inventory management, Web hosting and design, sales force automation, customer relationship management, e-business, networking assistance and other related services. Many ASPs re-rent third party software such as Oracle and E.piphany as part of their product offerings.

Some computer vendors offer their software applications for sale and rent. Several rental computer vendors offer software subscriptions as an alternative to outright system purchase, such as Springfield, Mass.-based Solutions by Computer, Systematic Software, Guelph, Ontario, and Shared Data Systems, Rock Hill, S.C.

Should the average rental business enter into an ASP relationship rather than purchase its computer system? Probably not, but there are some advantages. To better understand the ASP model, it helps to know its history.

ASPs sell themselves as the smart option for businesses that want to forego company-owned, company-run information technology. If you were to rent Internet-hosted applications, you would not own any software or hardware other than personal computers. You would pay a monthly fee to the ASP, which would own and maintain the server and operate the system and applications software. Your business would maintain its own database, but do little else.

This is actually a new spin on an old concept — the computer service bureau. In the 1960s, service bureaus offered companies an alternative to owning large and expensive mainframe computers, the only kind available at the time. They were primarily used in accounting — accounts receivable and payable, payroll and general ledger.

The service bureau's clients accessed the computer system via phone lines, but did not own or maintain any server, operating system or software. It was not as inexpensive as it sounds. The process almost always required dedicated, leased phone lines that were costly, as were the service bureau fees. But the client company did not have to purchase the computer system, did not have to develop its own software programs and did not have to hire its own computer operations staff.

Today's ASPs echo the same benefits, but to a lesser degree. The cost of computers has dropped dramatically and the computer labor pool has grown enormously. Packaged software is more affordable and does more than just accounting functions. Applications designed to manage specific types of business operations can be bought for a small fraction of the cost of development. This is true of software developed for the rental industry.

Also, the average businessperson 35 years ago was not computer savvy. Managers had no experience in establishing in-house computer departments. They had never recruited, retained or monitored a computer staff. Companies balked at the cost of high-priced systems and programmers. Service bureaus offered a way out of a situation that no longer holds true for most businesses.

Value-added ASP?

Small to mid-sized rental companies usually do not have dedicated computer staffs because they need very little system management. Today's rental systems are generally easy to maintain and most are purchased on a turnkey basis. This means the computer vendor provides hardware, software, training, documentation, installation and support. The vendor performs any custom programming or ongoing software enhancements. The turnkey relationship mitigates one of the main advantages of the ASP.

A quick survey of computerized rental companies illustrates just how little effort is required. John Donovan, co-owner of House of Rental in Skokie, Ill., uses 24 terminals in four stores. Donovan estimates that his staff spends less than 50 hours a year on system management functions. House of Rental does not employ any computer specialists because his staff performs any necessary system management procedures.

A to Z Rental Center's single location operates with several terminals in Albany, N.Y. Owner Tony Miani estimates that A to Z spends 45 minutes a day on non-automated backups and a total of less than 20 hours a year on procedures like purges, refreshes and software upgrade installations. Miani handles some of these functions himself and his store employees do the rest. His experience mirrors that of House of Rental's — no special computer expertise is required.

ASPs can be valuable to rental companies at either end of the size spectrum. A large rental operation might be able to eliminate staffing costs by renting its software applications. As Shared Data Systems president Larry Jones told RER last year, “The greatest challenge [lies in] trying to recruit and keep today's high-priced IT professionals. Most of these individuals are atop the salary and benefits list and increasingly seek corporate officer appointments and equity positions.”

For a small rental operation, a software subscription provides access to technology with little capital outlay. Claudette McPherson, owner of Walnut, Calif.-based Celebrations by Claudette, decided to rent software applications for her startup party rental business. She said, “It's a way to start a relationship with the company of our choice and it gives us all the benefits of the software without the upfront costs. This arrangement makes sense for us up to the point of writing about 100 transactions a month. After that, I definitely expect to grow into a system purchase.”

Systematic Software president James Lolley underscores this benefit to the small rental business, saying, “The cost of ownership becomes a fixed monthly payment that is easily budgeted. ASP facilities generally have very tight security systems in place and a high level of hardware redundancy [to protect against downtime]. The software application is always kept up to date, so the customer doesn't need to worry about updates.”

ASPs have long maintained that they allow a company to adopt new technologies quickly and more affordably. But in the rental industry, a number of computer vendors already make ongoing software enhancements available to customers at little or no cost. Here again, an ASP only makes sense for rental businesses operating under special circumstances.

An inability to deliver consistent value across certain vertical markets might be one reason why ASPs in general have failed to achieve the expected market penetration. Three years ago, ASP was the new buzzword in business automation and an entire industry seemingly sprang up overnight. By mid 2000, the bloom was off the rose. The national players grew too quickly while certain vertical markets simply failed to adopt the idea. Many industry analysts feel that consolidation and downsizing among ASPs are inevitable.

Most rental computer vendors who offer software for rent or lease do so as an adjunct to traditional system sales. They are not prone to the same problems that have dogged pure-play ASPs. For the small startup rental business with limited transactions, or the specialty rental business that is extremely seasonal, Internet-hosted applications software might be a viable first step into automation. Each company will need to weigh the pros and cons for itself.

Shea is president of Solutions by Computer, Springfield, Mass.

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