By Teng Fang Yih

This article first appeared in CIO (Features) in the Oct 2000 issue.

Know what you're going into so you don't get bitten. Read this story to learn:

• What is an application service provider (ASP)
• Who is an ASP and the applications and services they can give you
• Why or why not they will or will not be able to support you in the long term
• How and where you can source the right ASP for you

At the heart of all the e-business talk sits a model that is just waiting to flood the market with ease of use and staffing solutions. Just look at how many people are going into it! New ASPs are created nearly every day. These startups, restructured software companies and hybrid entities born of strategic partnerships (often between consulting groups and infrastructure providers) provide over 80 types of applications, according to Zona Research Inc. And although GartnerGroup Inc. predicts that out of the current line-up of approximately 300 ASPs more than 60 percent will disappear before the end of 2001 in an inevitable shakeout, analysts like Deloitte Consulting see great potential in the ASP market, and predict it will soar from its present size of less than US$10 billion to $48.5 billion in 2003.

International Data Corp. (IDC) expects the ASP industry to grow at a 91 percent rate year-on-year to reach a value of $7.8 billion in five years' time. IDC also estimates the value of the ASP business at about $300 million worldwide last year. And according to Clare Gillan, group vice president for applications and information access research at IDC, Asia could see similarly high growth figures in its ASP market. "The Asia-Pacific region could prove to be an early adopter of the ASP model," Gillan said recently at an IDC event. She also cited certain types of companies that are more likely to use an ASP, including those that see rapid changes in their industries (such as telecommunications companies, media companies and professional services firms), and those that are already heavy outsourcers of IT services (e.g. insurance and finance companies, and government organisations).

While it has been apparent from the start that ASPs are targetting small companies that want minimally-customised applications, and recently, vertical industries that need business-to-business (B2B) e-commerce services or industry-specific functionality, it has not been very obvious that there is another segment of large enterprise organisations that require complex "niche" applications that they cannot afford to develop themselves. Some of the Fortune 1000 are testing out ASPs in niche areas. Fifty-four percent of executives polled in the U.S. by CIO magazine this April view ASPs as an "enduring change in the way IT is accessed and utilised." Forty-four percent admit that they use ASPs for niche solutions while 40 percent said they are investigating the use of ASPs.

So in truth, the value proposition of ASPs can revolutionise the way business processes are handled by companies, irrespective of industry, and size. For small and medium-sized enterprises (SME), the value proposition is simply how cost-effective it is: Packaged applications that are minimally customised—if at all—such as enterprise resource planning (ERP) packages and small business software (like Windows 2000), for a rental charge. No heavy initial investment is required, and when time comes for updates and upgrades they still just pay the rental charge. Where it has the potential to thrive in the large enterprise segment of its market is in horizontal portals, which provide specialised "niche" functionality (human resource administration, for example) that can be shared by companies across many different industries.

Large enterprises may typically have the resources to invest in developing 'niche' functionality into their systems, for sure, but wouldn't their money, time, efforts and thoughts be better spent on building their core competencies and businesses? This is the wisdom that ASPs are trying to sell to large enterprises, and with some success.

Securing Security and Qualifying Quality

The two biggest challenges to the success of the ASP model are Internet quality of service (QoS) and security. Technology vendors and infrastructure providers are the ones in the best position to resolve these issues.

Leveraging partnerships with technology vendors and infrastructure providers is what many ASPs are doing to get into business. "We're from a legal firm that comprises three lawyers and three support staff members. So we cannot get into the business of developing the technology, putting it up and hosting it ourselves," says Lim Seng Siew, CEO and CTO of WWLegal.com Pte Ltd, as well as Senior Partner at Ong Tay & Partners.

What Lim and his partners, including Ong Ying Ping and Susan Tay Ting Lan (co-owners of Ong Tay & Partners), are building is a legal portal designed to provide online solutions to Singapore law firms. Having received the in-principle endorsement of the Law Society of Singapore earlier this year, Lim approached Solicitec Ltd, the generally acknowledged leader in case management systems in the U.K., for the SolCase case management system that offers sophisticated workflow, business logic as well as document assembly and management, and Horizon.com Ltd in Singapore for hosting. Both WWLegal.com and Solicitec—partners under Progress Software Corp.'s ASPEN Programme—are building the portal entirely on Progress Software's platform.

To date, Lim tells us, about S$500,000 [US$248,000] has been spent on setting up the portal. "The expenditure has been on everything from hosting, hardware, and design of the user interface on the Web site. But most of it has been on the development of modules," says Lim. "On 27 July, we tested and rolled out three modules where we saw the highest demand—debt collection, divorces and crime. And of the 100 law firms that have already signed up with us, we extended accounts to 14. We're at the testing stage and need to test the performance and the load capabilities before we bring on more law firms and more modules."

Lim believes WWLegal.com's value proposition is enough to make it a success. "If you look at legal professionals and how they work right now, they spend most of their time collecting information. In fact, only five percent of their time is spent on analysis," Lim begins to cite the factors that hamper productivity in the legal profession at present. "Then you notice that they always have great difficulty in collecting fees. And you also find that they are rarely able to advertise effectively, because to the public, a lawyer's a lawyer, and you only know how expensive and how good he is when you step into the office"

WWLegal.com sets out to resolve these problems, Lim says. The portal offers lawyers applications that enable them to not just retrieve and update legal information, but also to connect to Singapore's Electronic Filing System (EFS), workflow tools and a payment gateway (where WWLegal.com's system manages the collection of payments for law firms on it). And the portal offers the first public listing of lawyers with a selection and matching feature, and even interactive advice online for a fixed fee.

"The public still thinks that when it steps into a lawyer's office, it has to pay [S$1000], regardless of the problem, the advice given, and the papers generated," says Lim, quite seriously. "When this interactive advice facility goes up [sometime later this year], any member of the public can just come online, approach a law firm, consult it, state his or her problem, and receive advice for a fixed fee of, say [S$80]. And that's the value of WWLegal.com, on top of the case management and accounting applications we offer lawyers, and on top of the connections to the government."

WWLegal.com is certain its value proposition is compelling. With technology and infrastructure partners behind it, the security and integrity of its systems are as secure as they can be. And given that its modules and applications are more or less tagged to the government's legal records and other legal-related systems, WWLegal.com's security must be secure.

Internet QoS cannot be too much of a problem at this point in time, as it is a portal for legal professionals, whose work—except when they have to appear at court hearings—is more or less document-based. "No, we don't have Internet QoS issues in Singapore. And besides, we don't really need high bandwidth at this stage for what we're providing," says Lim, who is also currently Chairman of the Court's Electronic Filing System Committee, and member of the Information Technology Committee of the Law Society (of Singapore).

Lim tells us that higher bandwidth requirements may soon appear. "In Singapore, we are looking at electronic hearings. Our immediate plans along that line have to do with facilitating electronic hearings for mediation and arbitration. That's tentatively scheduled for delivery in January or February 2001. That's also an optimistic schedule. I say that precisely because of the bandwidth issue. It requires videoconferencing and that requires bandwidth. So we're looking at Singapore ONE arrangements for that," he says.

Trust the ASP with Smaller Things First While Lim tangles with legal issues of broadband, we turn to CET Technologies Pte Ltd (CET), a subsidiary of Singapore Technologies Electronics, for an ASP customer view. CET is reputedly the region's leading system house for the communications, defence and transportation industries. In Singapore, its customers include the Ministry of Defence (MINDEF) and the Land Transport Authority (LTA). In 1999, it had turnover totalling S$130 million [US$76 million], and its staff number hovers around the 500 mark. However, it has an internal IS team of less than five people. Two-thirds of their staff of 500 are engineers who are often required to do on-site work, while the rest were administrative workers and production operators. Early this year, Eileen Ko, human resource manager, had some problems she wanted to solve, cost-effectively and quickly. They were all to do with administrative tasks. "[For communications within the company] we have an intranet. But it lacked key administrative components, like online leave application and online suggestion systems. Our employees had to physically pick up forms from the pigeon holes and the approvals of leave would take a few days," says Ko, who says that the turnaround time can also be much longer. "Many of our staff are on overseas assignments, and their leave applications often come in by fax." "We also had problems disseminating information as our staff are located at different sites. We had a centralised telephone directory, which was printed once a year and distributed to all staff. However, updating it was a big challenge," says Ko, indicating also that because it is only updated annually, the directory is only current once a year for a short period of time. "And our old [employee] suggestion scheme also worked on a manual basis. We actually had to have eight administrators spend time processing each suggestion submitted." "Administrative functions via these old methods, mostly manual processes, were time-consuming and not cost-effective," says Ko, who decided to shuffle off this manual coil, once and for all, by approaching an ASP, namely JustLogin Pte Ltd, and in a few short weeks, Ko's internal administrative systems were connected to the JustLogin site. "Now we just pay a monthly fee. This obviously means greater convenience for our staff leading to their enhanced productivity, since they can perform office administration tasks from anywhere and at anytime. There are also greater cost savings, since manpower is used more efficiently now — there is no longer the hassle of tracking leave applications and processing of suggestions manually." According to Ko, CET experienced no significant problems when moving its administrative functions onto JustLogin. "We already had the basic infrastructure — simply, Internet connection and browser — in place for our staff to use the system," says Ko. "And although we required some customisation from JustLogin for our leave rules — such as, leave balance and entitlement — to be put into the system, that was done in weeks, if not days." Really, Ko only has good things to say about her ASP, and is thinking of putting more processes on JustLogin. But she made sure she got some major commitments down, some on paper. "They ensured security with a Firewall, making authentication via unique user name and password a basic requirement, enforcing Truste certification for the JustLogin site, and very strict privacy terms in the contract," says Ko. "And they have also committed to disaster recovery with twin servers in the event of a failure, currently provide daily backups on tape, and provide technical support via phone and email."

ASP Wisdom or Hokum

For an idea of how ASPs may change a whole chunk of the economy, turn back to the legal profession in Singapore, where the government has invested no small sum of money on making as many legal processes electronic as possible. The EFS— done by Singapore Network Services Pte Ltd, the Law Society of Singapore and numerous other partners—cost about S$35 million [US$21 million]. And, although the numbers haven't yet appeared on how much is being and going to be spent on facilitating electronic hearings, it is expected to be recounted in millions. The returns have not been estimated. But that's how it is with IT expenditure. And that's how it is with expenditure on IT by an ASP too. Lim of WWLegal.com tells us that at this stage he cannot even begin to estimate the ROI of his ASP site. Lim says that all he knows is to stay focused on giving lawyers the applications that lawyers want and to help them do their jobs better, at lower costs and ethically.

The lack of visible ROI for ASPs in the long run could have an impact on the bottomline for their customers, however. This is particularly true when the value of an ASP's services to a customer is contingent on the integrity of that ASP's applications and the quality of its services. When an ASP does not make money in the long run, business basics dictate that it will not survive. As it dies, its services will degenerate, and its customers will suffer. And when it does eventually pass on, its customers then have to source another ASP to provide the same set of applications and services, and worry about migrating their business information to another platform and perhaps another format, or return to the trusty old and expensive way of buying generic software and worry about the often painful process of customising it to suit their business needs.

That's a bleak picture. But it could well happen. So, if you are now looking for an ASP, warily I say to you: Tread carefull, for fear you may get bitten by a dying ASP.