While most pundits had predicted fastest uptake of application service provision (ASP) by smaller manufacturers, it’s the big boys who are seeing the benefits, says Frank Booty
Manufacturing IT and e-business industry analyst AMR Research in the US predicts that the enterprise application service provider (ASP) market globally will nudge $4.7 billion by 2004, with compound annual growth of 153%. It expects Europe to constitute a good 40% of that.
Strongest growth is expected in: e-business relationship management, hosted business applications, small business applications, trading exchanges, enterprise asset management and product lifecycle management. Meanwhile, the ASP market is broken down by AMR into three major segments: enterprise application service providers, e-commerce and web-hosting providers, and business process outsourcing (BPO). And the analyst further forecasts the BPO segment as the next growth area for ASPs.
BPO companies act as third parties, supplying solutions which reduce or eliminate the expense and overhead of specific departments, letting companies focus on so-called core competencies. And its prediction seems already to be close to reality.
Early this year, an ASP initially for SME manufacturers in the West Midlands, e-know.net, was set up to rent and/or host manufacturing and business software. But while its target market has been rather slowly catching on to the ASP concept, e-know.net is finding another kind of user emerging – in particular multi-nationals comprising a number of smaller companies and distributed sites. Their requirements can involve anything from gaining remote access to internal systems from other sites, to allowing customers enterprise system access under a developing e-business strategy.
The point seems to be that while there remains some resistance to wholesale outsourcing of manufacturing and business management applications, when it comes to specific Web-based projects, the bigger boys can see the advantages. David Redwood, e-know.net’s joint founder, says, “We have three small businesses going live in August and two multi-national customers between September and November. We reckon on achieving a US$20 million turnover three years from now, deriving from a 65:35 split on units to SMEs and 70:30 by value to multi-nationals.”
Redwood points to a large car manufacturer based in the US with plant in South America. It needs to link engineering design done in South America with the US facilities, with a prime supplier based in the West Midlands and secondary supplier in mainland Europe, using the Internet. “There’s only some 12 terminals involved in all,” says Redwood. “It’s a massive opportunity to link four countries together. In another contract we have 30 different users wanting access to the same database. The company has a site near here, HQ in London and manufacturing operations in the US and Australia.”
Competition for e-know.net seems thin on the ground at the moment. Rent-IT is one company that set up recently in Southampton. And BMW group automotive IT firm Softlab is now partnering with Swedish enterprise software (ERP) developer IFS, offering rented IFS Applications 2000 software through its ASPTheta initiative.
Redwood also knows of German start-up einstein.net, which secured funding of Euro300 million – but over six months “has yet to report any business”. Meanwhile, the ASP market has been validated by the big players – IBM, for example, is committed. IBM relates that “companies are not just buying backbone ERP today, but an entrance to do e-business and manage that challenge”. And ASP pioneer Telecomputing reckons “ASPs offer a new IT delivery paradigm – applications delivered as a service to any client, anywhere.”
But all seem to be going the same way. Softlab, for example, believes the ASP model will become an integral part of business IT strategies with ERP increasingly being rented. However, Phil Dawson, portfolio manager, says, “We too have been surprised in that the market has not taken off as quickly as expected. And the interest has come not from SMEs but the larger organisations. We have targeted companies with turnovers of £20 million and above, up to a £750 million cut-off. But even organisations bigger than that have been showing interest.”
He adds: “It tends not to be the IT departments we target, but the business. In an analogy with when home computing first surfaced, business leaders will see their kids surfing the web, ordering books and videos, etc, and then demand from their IT departments why they can’t communicate with their suppliers. The ASP angle takes the pain away – the SLAs, 7x24 working and skills shortage. This can get the IT department back on side.”
Meanwhile, as e-know.net is showing, customers can connect multiple sites across remote geographies to a comprehensive, high performance computing and application capability via the Internet or a private network. And it’s attractive: the company charges an up-front fee for initial start-up in the order of £10,000, followed by a monthly fee of around £150, depending on the scope of service. Weigh that against the vast sums required for going it alone: and note too, e-know.net promises “going live within six weeks.”
Both e-know.net and Softlab have been seeing interest across all sectors. Yet there are too many companies who think e-business will just “fall off a log” into their laps and then they’ll know what to do. A lot of companies are waiting to be told what to do. A redeeming feature of the ASP model is that it allows development as part of an e-business strategy. Once, of course, the penny has dropped as to what e-business is exactly.
As e-know.net has discovered, the key benefit the ASP model can bestow on users – be they smaller businesses or multinationals constituted from small companies – is business efficiency. Few could, or would wish to, argue against that.
Author: Frank Booty