Corporate TreasuryCentralisationCentralisation OutsourcingIs the Stage Set for ASP Adoption?

Is the Stage Set for ASP Adoption?

The concept of the application service provider (ASP) has been around since the late 1990s. During that time there was great expectation for ASP adoption among corporates; however, the ensuing reality failed to live up to the initial excitement. Fast forward 10 years and the financial services industry now operates in a very different environment. Has the development of web-based technologies and the wider use of the Internet for transactions set the stage for the ASP model to finally take off?

Original Roadblocks to Adoption

Before focusing on ASPs in the current corporate technology environment, it is important to understand that the obstacles which originally prevented initial ASP adoption were based on limited technology and uncertainty about this new business model.

When the ASP model first became available, corporates were worried about the security of their data travelling along the relatively unknown channels of the Internet. In the past five years, the initial fear about Internet security has largely disappeared due to enhanced security tools such as 128-bit SSL encryption that has helped to eliminate the threat of fraud. Today, acceptance of Internet commerce is reflected by the fact that so many transactions are conducted via the web by both institutions and consumers.

Another obstacle to ASP adoption was a lack of confidence in the overall business model. The ‘dotcoms’ of the time were new and unfamiliar entities with no track record in providing sustainable, reliable solutions through an ASP model, which created a perception of high vendor risk. The situation was further complicated by the fact that many providers used web emulation tools (i.e. a tool that allows computer programs to run on a platform other than the one for which they were originally written) that offered low performance access to non-HTML based applications through a web browser. A lack of ability to integrate an ASP-based financial service with other corporate solutions such as ERPs was also a major deterrent to its use and proliferation.

Finally, the ASP model met resistance from IT departments that were reluctant to relinquish control over what they considered to be their area of the business. Furthermore, because ASPs had a reputation for offering standardized and centrally managed services, many corporate IT practitioners did not believe ASP solutions could meet their specific needs and requirements.

From these perceived disadvantages it is obvious why the ASP model did not achieve its initial predicted growth rates. Now that the technology has evolved, perceptions are shifting as many of the issues that previously hindered ASP adoption are no longer applicable.

Changing Dynamics: ASPs Today

Today, ASPs are also referred to as software-as-a-service (SaaS) or on-demand software providers. This basically describes a solution where a provider delivers and maintains a software product to its customer over the Internet.

The transformation of attitudes towards the ASP model or the SaaS concept has primarily been driven by IT and technology. With the improvement of web-based systems and service-oriented architecture (SOA) there is now greater integration capability between a corporate’s existing systems and the ASP model. SOA has enabled IT departments to think outside the traditional restrictions of infrastructure and focus much more on the service, instead of where or how it is managed or deployed. Internet-based technology has also created global accessibility for a greater number of users, supporting data transparency and centralization. Furthermore, improved integration has resulted in faster implementation and therefore a quicker return on investment for the end-user.

Another significant change is the way in which IT managers have adjusted their perception of the ASP model as a threat to their control. ASPs are now considered a tool to provide greater flexibility, allowing IT departments to focus more on strategic tasks rather than day-to-day administration, such as maintaining existing applications and enforcing security measures.

It is more important today than ever before for corporates to demonstrate that they have adequate controls and safeguards on their data,1 and the ASP model can reduce costs for corporates in the areas of business continuity and security controls. Sarbanes-Oxley has made SAS 70 audit reports a crucial part of reporting on effective internal controls. To become SAS 70 compliant requires time, money and resources and corporates can avoid this burden by using an ASP vendor that has already invested in becoming SAS 70 compliant. This also means the corporate will benefit from the disaster recovery, business continuity, security and redundancy measures needed for SAS 70 compliance through their ASP.

The ASP Customer

As the ASP model continues to evolve, it has become evident that there are multiple market segments adopting the model and utilizing it in different ways:

  • For small companies (under US$1bn in revenues), the ASP model is an attractive proposition because of their limited resources to manage all the systems and processes necessary to run their business operations.
  • Middle market corporates (between US$1-20bn in revenues) are leveraging the ASP model and integrating it within their existing business model and processes to allow them to free up internal resources to focus on strategy.
  • Large corporates (over US$20bn in revenues) that already spend millions on IT use the ASP model as a strategic initiative to allow them to move beyond the traditional uses of software to a value added service.

Conclusion

Wider adoption of the ASP or SaaS model is expected in the coming years.A recent study from the Aberdeen Group shows that companies of all sizes have begun adopting SaaS in order to get solutions implemented more quickly, achieve faster ROI and lower their IT costs.2 Figures also show that 64% of large and mid-size companies would consider using SaaS as a financial management solution.3

Whether you call it an ASP, SaaS or on-demand software, acceptance of this type of application delivery model is gaining greater momentum. Facilitators such as web-based technology, SOA, the perception shift among IT managers and reduced costs are encouraging more corporates to utilize an ASP or SaaS. With added benefits such as scalability, transparency and control, the stage is now set for continued ASP growth and adoption.

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1SAS 70 website
2Aberdeen Group research:24 August 2006
3Aberdeen Group research: 24 August 2006

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