Newsletter article

March 2001

Volume 16
Number 12

Does ASP Make Sense for Your School?

The ASP (Application Service Provider) arrangement is an intriguing way of outsourcing certain parts of an organization=s IT operation, with the promise that it will save the organization money in the long run. These arrangements are relatively new to higher education, but virtually every top-tier higher education software vendor is scrambling to arrange for a partner or other means to provide ASP options for their clients in light of the possibility that ASP may be a cost-effective solution.

The Application Server Provider (ASP) Solution
	Potential Advantages	Potential Disadvantages
Cost	Possibly save money	Actual costs unknown at this time; ASP may not reduce some major categories of cost
Timing	Costs are spread over time	Some plans charge by usage; costs could rise
Staffing	Easier than recruiting in-house technical staff	Overdependence on outside firm
Control	Turn responsibility for operations over to others	Loss of control over level of service
Risk		ASP is untested in higher education; may not match needs

ASP arrangements come in many flavors. For example, an ASP arrangement for a typical college might look like this: Hardware, technical support services, the database management system, and the data would be kept off campus and maintained and supported by an external company, the ASP. All hardware and software would be owned by the ASP. The college would subscribe to the ASP service, paying a monthly fee. The fee would either be fixed or based on the numbers and kinds of users. In effect, the college would be Arenting@ the application. Users on campus would access the information system either through the Internet or through a private communications network. First-level user support for the system (i.e., problems with it not running correctly) would be provided remotely by employees of the ASP. Not included in the basic ASP arrangement would be services such as implementing, customizing, enhancing, and adapting the system, as well as training and supporting functional users. These services may be available in more extended ASP arrangements, or the college could provide them using internal staff.

Cost
Most vendors of higher education systems are just now in the process of negotiating with ASP partners and developing their business models for their ASP offerings. Relatively few deals between the software vendors and ASP providers have actually been struck so far. Pricing for the ASP alternative right now is pretty much guesswork on the part of the vendors. Six months or a year from now, this will be much better known.

Even knowing the price of the ASP services, it is difficult to calculate the impact it would have on the cost of the overall project. Implementation of a new application system, for example (a time when an ASP arrangement is most often considered), would require a very comparable level of effort from users, applications programmers, systems analysts, and project managers whether the application is hosted by an ASP or not. The savings from the ASP option are in hardware, system support, and other Aback room@ technical areas.

Even if some savings could be realized on this lower level of serving the technical needs of keeping the platforms and applications running, most of a college=s cost is generally at a higher level. A college typically requires outside experts in both the software package and the needs of the functional users. Schools get that from the software vendor itself, from an implementation partner, or from other contractors. This is precisely the arrangement that has proven so expensive. Getting these services from a single firm that is also providing traditional ASP services would not make the professional support services any less expensive.

With regard to outsourcing hardware and servers, organizations can benefit if their current operation is highly inefficient, if they lack a method for financing the capital cost of the hardware, or if operating the hardware is a major distraction from their core business.

Timing
An ASP arrangement can help avoid front-loaded costs and turn the system into an operating rather than a capital expense. On the other hand, ASP prices are typically calculated by the Aseat.@ As a college grows more dependent on its administrative information system and adds more users (including faculty, students, and alumni), and these users become more active, the cost would likely rise over time.

Other financing methods are available for spreading out the cost of the project.

Staffing
One reason that a college might choose ASP is that it doesn=t have sufficient technical staff, or is not able to recruit and retain technical talent. The ASP replaces some of the in-house staff; this is an essential part of the potential cost savings. Savings are generated especially when more than one organization can share the cost of a staff member. The drawback is that the customer then becomes totally dependent on the ASP for these functions. Understandably, many colleges might not be comfortable in this position.

Control
It is attractive to think of having the applications work in a turnkey fashion, with all of the headaches transferred to the ASP. The secret of a successful ASP engagement is to work out appropriate Service Level Agreements (SLAs) that spell out how much down time will be accepted, how quickly certain kinds of problems will be fixed, how fast the screens will run, etc. The difficulty is making sure that the vendor is able to fulfill these SLAs and having effective measures to take if the vendor fails to meet the customer=s expectations.

One observer has pointed out that the ASP takes on the same level of importance to a company as its bank, but without the same level of regulation that the banking industry works under. Last summer Pandesic suddenly announced it was closing. This company had been started by Intel and SAP to offer ASP services in e-commerce. Pandesic=s 100 or so customers found that their SLAs could not force Pandesic to stay in an unprofitable business or to pay for the cost of their transferring to another ASP.

Risk
ASP is untested in higher education, and it may not match the needs well enough in the long run. The core concept of ASP is Aone-to-many.@

The ASP firm enjoys the cost efficiency of supplying the same application to many customers. This works best in the most basic form of ASP, where the customer=s business process is fairly simple and the technical support services provided by the ASP are fairly generic. Higher education falls higher up the scale toward complex, highly customized business processes (especially in the student-information area), the need for knowledgeable, specialized support, and the need to integrate with other applications outside the core information system. That end of the ASP model begins to resemble the form of outsourcing that is sometimes called applications management.

Forms of outsourcing have been available specifically to higher education since 1968; still today, fewer than three percent of the institutions in the University S. use full outsourcing for their IT operations. Similarly, higher education software providers who went strongly toward ASP in the past did not find much interest. ASP relies on economies of scale, so ASPs will have to generate enough customers in higher education to make that work.

It remains to be seen whether the ideas underlying ASP will prove to be an attractive concept in higher education. Higher education applications, especially student administration and advancement, are probably less cut-and-dried than the applications that have been successfully ASPed or outsourced in industry, such as e-commerce, human resources, and payroll.

Questions
The campus information system is very important to the core business of a college. Schools are also usually very concerned about being able to ensure the quality of service that is being provided directly to the campus users and giving the campus users a large measure of control over the system. Turning the operation of the system over to an outside company raises questions such as: Who will decide when upgrades, patches, and fixes are applied, and how will these be reconciled with any customizations that the college has already made? Who will troubleshoot problems that are not the result of flaws in the software, but of mistakes in how the system has been adapted to the college=s business processes? If there is a difference of opinion about where the responsibility lies, how will it be resolved? How secure and private will the data be? How will the college continue to function if communication to the ASP is temporarily disrupted? If the ASP goes out of business, or if the college decides to switch ASPs, how will the college=s data be extracted and moved to the new system?

Other considerations
There may be a very specific disadvantage for a school that already owns its administrative software. In the primary ASP model, the ASP owns the software and the customer leases it. In the case of a college that already Aowns@ its software, the standard business model that ASP operators have worked out won=t apply. In this case, the college would have to forge its own deal. Assuming that some kind of deal could be worked out to license back the software to the ASP operator to run on its servers, the parts that would remain would be hardware and support. This arrangement would probably reduce the financial benefit from the ASP model.

Furthermore, most administrative systems today are not ready to use Aout of the box.@ Power and flexibility on the one hand, and at least in some cases, the immaturity of the software in the higher education arena on the other, may combine to require much adaptation and setup during implementation and after. This makes it an even bigger stretch for the concept of one-to-many ASP delivery.

Summary
The ASP alternative may not radically shift the economics of the situation that many colleges face today. Despite that, and despite the many open questions that remain about the ASP model for higher education, there is enough potential value in the ASP approach to make it possibly viable for the future. Certainly any college going through a software selection process today should ask each software vendor to supply information about its ASP offerings. Although ASP is relatively new for this kind of application and it will be difficult to determine in advance whether the quality of service, response time, uptime, and other factors will be satisfactory, there is enough potential benefit in an effective ASP arrangement to make it worth serious consideration. JS

John Savarese is a consultant with Edutech International.