• July 16, 2001

ASPs: Here for Now?

"People tend to become overwhelmed and over-enamored with new technology, but it's important to remember the past when looking at today's breakthroughs," reports Don Blumberg, president of D.F. Blumberg Associates of Fort Washington, Pa. "The ASP model of today is really an old model in new clothing."

Blumberg is referring to the computer service bureaus of the 1970s. Service bureaus originated because the high cost of computer mainframes made the individual purchase of such systems prohibitive. Rather than purchase their own stand-alone systems, companies could sign a contract with a service bureau and share the bureau's computer with other firms, paying set fees based on use. Over time, as companies increased their use of computers, the price of the service became more expensive than the price of the equipment itself; so the service bureau concept eventually met its demise.

"ASPs are a modified version of service bureaus," says Blumberg. "Today's system is better because it's well-armed with firewalls and security protection technology, and it's connected to the Internet. ASPs certainly pay off handsomely for smaller companies in the short run since there's no large initial capital expenditure, but over time, as companies use the ASP services more and more, they may find that the constant outlay of a monthly fee costs more than simply creating their own system.

"ASPs are best for small companies that want to grow rapidly. Companies can be up and running in a matter of months or weeks (instead of in a year or longer if a similar in-house approach is used) without making a huge capital investment or taking a huge risk in investing in a particular technology that may not meet their needs in the future. As with everything in life, there's a tradeoff. First, the ASP may go out of business; secondly, the ASP gets access to all of your proprietary data. You have to hope to find a well-funded, honest supplier. Smart companies will include a 30-day escape clause in their contract with any ASP to let them out of the contract if the ASP fails to perform. Consultants also can help smaller companies choose the right ASP for their needs."

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