Application Service Providers: The Pros and Cons

With an ASP, an agency need not invest what can be a substantial amount to acquire a high-capacity server(s) or the software licensing fees to use a particular agency management system. Instead, it pays the ASP a monthly subscription fee, which is based on the number of users. Additional fees might be applicable if the agency requires custom programming.

An ASP offers a number of benefits, including:

1. REDUCED EXPENSE

Start-up agencies or those that haven’t invested heavily in technology could enjoy significant savings by using an ASP. Running an agency management system on an ASP reduces total automation costs because there’s no need to invest in hardware, software installation, and software licenses. On the other hand, an agency converting to an ASP might face setup and conversion fees, higher monthly costs, and the reconfiguration of internal systems. Such expenses level off after the conversion has been completed. Savings might also be reduced by the need to outsource the management of the network and related software or to keep employees who perform that function.

2. DISASTER RECOVERY

When agencies create emergency preparedness plans, they usually focus on the risk of losing their customer data and the equipment that supports it. Agencies can back up their data, but if their physical plant were destroyed, they’d need to replace equipment quickly and find an alternative location in which to operate. With an ASP, an agency doesn’t have to be concerned with maintaining backups of data in a safe site or restoring it if a server is damaged or the agency’s physical facility is destroyed. As long as an agency has access to an Internet connection, it can access the system and process transactions.

3. LOWER UPDATING AND MAINTENANCE COSTS

With an ASP, no regular software updates are needed on the server operating system; the ASP takes care of them. Nor does the server need to be replaced periodically, as it does in a non-ASP environment. Finally, routine maintenance to the server hardware is no longer necessary.

Although there are numerous benefits to using an ASP, you should investigate them before making a decision to switch. Ask how many other agencies are using a particular ASP and what their experience has been. Interview some of these agencies; ask them about the advantages and drawbacks they’ve noticed in using an ASP. Comparing the ASP’s interface capabilities (upload and download) to those of your in-house system is essential to determine if you’ll lose or gain any capabilities you have today. Providing a complete list of third-party software the agency uses is essential to determine how you’ll maintain any software the ASP doesn’t support and what issues or challenges that maintaining the software will present.

Other questions to consider are:

• Will the vendor provide training on how to use the ASP? If so, how?
• How will the ASP affect such capabilities as desktop faxing, e-mailing, and Internet access? If you have implemented imaging or use scanning, how will the new environment affect this capability?
• What kind of guarantee will you receive for security and integrity and regular backup of data?
• Will the ASP allow your employees to work at a speed comparable with what they have now?

• How are service issues handled?

Behnke & Co. Inc. (Decatur, IL) is at the tail end of selecting an ASP. We interviewed Chief Operating Officer Jim Grady about their concerns, costs, and expectations.

BMG: Why did you decide to take the ASP route instead of maintaining this type of administration in-house?

Grady: Frankly, we wanted to get out of the system management business. Not only were we spending too much valuable time on it, we’d reached the point where we would’ve had to hire a system administrator.

BMG: Does this mean that all of your system administration and server headaches are now outsourced?

Grady: No. We still need an in-house server for applications that the ASP currently can’t handle. For example, we use third-party software for e-mailing, word-processing, spreadsheets, rating, etc. Although we still need an in-house server, the ASP vastly diminishes the level of administration and hardware support.

BMG: What other factors entered into your decision to go with an ASP?

Grady: We anticipate needing a lot of flexibility. Our headquarters is in Decatur, but we also have offices in Chicago and Bloomington (IL) and will soon be expanding elsewhere. Today, applications written in those offices need to be faxed here, and we input them into our system. Using the ASP, each office will be able to input from their own location.

We also took the opportunity to visit the ASP’s data center. That, as much as anything else, helped convince us that this was the right decision. A major concern was business continuity in the event of a catastrophe. It was an impressive facility, with built-in redundancies in case of power outage, fire, and flood. We also learned that the ASP had a secondary facility in another location as an extra precaution against catastrophe.

BMG: Surely you must’ve had some reservations or second thoughts?

Grady: First of all, we had to deal with human nature. With an ASP, we’re losing a certain element of control. That made us a bit uncomfortable at first, but we feel that over time it will turn out to be a non-issue.

Second, we anticipate our service fees doubling or even tripling, compared to similar expenses in-house. However, the savings from not hiring a system administrator and by not upgrading software and servers will more than compensate for them.

Finally, we realize that an ASP is only as good as our Internet provider. This part of the equation is our responsibility. We spent the time and money to hire an outside professional to conduct a due diligence review and make recommendations for the right cable provider. The best application service provider is useless if your staff can’t get quick, consistent, and reliable access to the online system.

In the final analysis, an ASP might reduce some headaches, but increase some costs. Your ASP will handle the system administration, but you’ll still need infrastructure, support, and all the associated expenses for other software applications that the ASP doesn’t handle. It’s only a matter of time before ASP vendors expand their capabilities to provide all-inclusive solutions to running an agency, without the need for other software applications.

In the meantime, investigate your alternatives thoroughly so you don’t get bitten by an ASP.