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The latest e-trend: the ASP
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March 21, 2000: 11:02 a.m. ET
More software vendors have programs for rent, but can that work for small businesses?
By Staff Writer Steve Bills
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NEW YORK (CNNfn) - A new class of competitor is poised to take a bite of the exploding e-commerce market -- the ASP.
No ordinary snake in the grass, the emerging category of applications service provider could provide just the tonic a small business needs to strike in the marketplace.
But beware: The ASP industry is slippery. Some of the leaders in the segment are scarcely more than one-and-a-half years old; after all, it hardly made sense to offer business software over the Internet until there was enough of a potential customer base out there to support it.
The emphasis on small-business customers is even newer. Until recently, the fledgling industry put its focus on enterprise-level users, the large, corporate-scale customers that could take advantage of heavy-duty human resources programs, for instance, over distributed networks.
But, in a developing "thin-client" environment in which even WordPerfect, that shrink-wrap classic, is becoming available by subscription over the Internet, it may make sense for you to consider renting software for your small company rather than buying it.
'An issue of productivity'
"It's not only a bottom-line issue," said Jim O'Reilly of the ASP Industry Consortium, a trade group that has grown to 370 members now from 25 founders in May 1999. "It is an issue of productivity and deployment of resources."
Put simply, that means you don't have to install, maintain, update and troubleshoot finicky software on your small-business computer system. You can leave those headaches to the application service provider.
 It was this exact insight that led to the establishment of one of the pioneers in the ASP field, Corio Inc. Its founder, Jonathan Lee, had started several smaller information technology companies, but it seemed he was always installing the same software packages onto a new set of computers. Rather than continuing the same process, it occurred to Lee that he could provide the same service "in a one-to-many way," said Corio spokesman Larry Yu.
Corio launched in September 1998, quickly partnering with Peoplesoft, which is the 800-pound gorilla of the human resources software category. Today it offers half a dozen heavy-duty business productivity packages, geared primarily toward the enterprise market. The company does see some potential in small business, Yu said, especially "young, rapidly growing companies that are well funded."
At the other end of the spectrum is an ASP startup called Agillion.com, which has built its software from scratch to provide a Web-oriented database of customer information for companies -- an "e-dashboard" for small business.
 The concept is much like a Web-enhanced contact-management program, and Agillion in fact supports formats for Microsoft Outlook, Symantec Act and other contact databases. But it adds the bells and whistles of the Internet, so that when a salesperson telephones a client, not only does recorded personal information such as the name of the client's spouse come up, but also the weather report for the client's town, a stock chart, and so on -- conversation starters.
"Our vision is the first thing you do in the morning is log on," said Rushton McGarr, a marketing director at the Austin, Texas, company, noting that the records are updated constantly throughout the day with e-mails, notes -- even audio files of voicemail messages. "And the last thing you do before you leave is log off."
The cost is geared to the low end of the market -- $29.95 per month per "team member," plus an unlimited number of free personalized Web pages for clients. And Agillion is offering its services for free until June 1 in a marketing promotion.
Some potential risks
Still, while the potential seems vast, your business may face risks if you outsource your software. "I am cautious about making strong recommendations at this point," said Mikelle Fisher Eastley, a management consultant at NerveWire.com, an e-commerce services firm in Needham, Mass.
"For small business users, the prices have not come down quite enough to make it worthwhile yet," she said. "The sweet spot is the middle-market user right now, as far as I can tell."
Eastley offered a number of issues for a small business to consider before turning to subscription software:
How fast is your Internet connection? "Dialup is not sufficient for using rental applications," she warned. "It might be acceptable for applications that you use 10 percent of your day, but not for applications you use 70 or 80 percent of your day."
How well established is the ASP you are considering? "What is the status of the company? How new are they? What are their sources of cash? Do they have enough money to stay in business for the long term?" she asked.
What kind of contract will you have to sign? Terms of 12 to 36 months are common in the ASP industry, Eastley said, depending on the extent of customization necessary to set up a client.
Who protects your data? If you are putting your accounts receivable on a remote server, you want to be sure the data is protected from snoopers, either over the Internet or with a key to the provider's back door. Likewise, if the vendor goes down the drain, you want to be sure your financial records don't go with it. You need to be able to port your records back home if you decide not to do business with your ASP any more.
Where are you going in the future? This is perhaps the most difficult question of all. For starters, you need to assess your own business needs not only for today, but for 12 to 18 months from now, to be sure your ASP will be able to handle the demands of your growing business. But then you also need to ask the service provider about its vision for the future; ASPs are continually adding new tools and services. It can be a tricky matter to guess whether the arc of your business and the arc of your ASP's will have you on the same track a year or two from now.
"There is potential real value," Eastley said. "There is also the potential for real damage to the small business user." 
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