Apps on Tap

9 November 2000
I need to get my company off the expensive software upgrade rollercoaster. How do I do it?" The answer may be that you find the right application service provider (ASP).

In English, an ASP allows your company to rent software and hire a third party to run it. In theory, this reduces your costs and reduces your need for an IT workforce.

If geek speak is your thing (if not, skip this paragraph), an ASP is an entity that manages and delivers application capabilities to multiple entities from data centers across a wide area network (WAN).

Let's take a look at a practical example of how your company could benefit from using an ASP.

Let's say that you've just licensed customized knowledge management software which you'll use to organize and store electronic purchase orders. You were driven to this decision to license this software because tracking paper purchase orders was inaccurate, expensive, cumbersome and bad for trees.

The new software has great tracking and search functions and integrates well with your existing system. The software runs on a server and you need additional hardware to support it. The hardware and software together add up to $60,000. Add to that a backup system, anti-virus software, implementation fees, maintenance fees, 24x7 customer service support, extended warranty service, including any applicable upgrades for the next two years, and you might be looking at a $200,000 capital outlay.

Scenario two. Your company has just contracted with an ASP which it will use to do the same thing. You don't purchase a license for the software. Rather, you rent it for $2,000 a month.

Instead of purchasing a server, you simply purchase several "thin client devices" (i.e. really cheap computers) which allow your people to input the information from their desktops to the ASP's server. Your ASP then backs up your information, purchases and runs the anti-virus software at their end, maintains the software, implements patches as necessary, and provides you with a seamless interface.

Ahhhhhh. Don't you feel stress reduction just reading the words? Oh yes, and you're looking at a cost savings of about $150,000.

To determine the ASP that's right for you, ask yourself a couple of questions: Do you need an industry-specific ASP? For example, if you're a telephone company looking to outsource telecom billing software, the answer is probably yes. For more general software apps, you may not need to contract with an ASP that specializes in certain software apps.

How's your in-house IT department? If you don't know what "IT" stands for, you'll need to search for an ASP that is willing to focus its efforts on help desk support and excellent customer service.

Oh yes, "IT" stands for "information technology." If you're going to outsource IT, make sure the ASP knows that you're relying on them for this basic service.

Once you've identified that you need an ASP and you've identified the ASP that's right for you, you'll enter into a contract with them. That contract is critical because it should define and describe the salient aspects of your relationship.

Here are three critical points to address in that contract. (There's more, but I only get so much space.) If you don't cover these points in your contract, I'd hate to have to say, "I told you so," but…I told you so.

Pricing. What is the ASP going to charge you on a monthly basis? Try to uncover any hidden costs that may hit you including customer support or patches. Make sure that your contract addresses these. If there's any question in your mind as to what costs might arise, walk through a typical disaster situation with the ASP. For example, it's December 22 and your online sales support software is inaccessible. Is the cost of 24x7 software maintenance included?

Service. Make sure that you include a service level agreement (SLA) in your contract. Make sure that if the ASP doesn't provide the service that it's promised you in the contract, they pay. This could be in the form of credits or refunds.

Security. With an ASP, your company is saving what could be its most valuable information on a third party's equipment. Your contract needs to address who can (and who can't) access that information.

You need to know how certain employees gain access to key information and how the ASP blocks others from accessing that information. Does the ASP employ firewalls and anti-virus software? What does it do in a natural emergency like a hurricane?

Read the "force majuere" clause in the contract. You can usually find it the end of the contract in really small print. If it states, in legalese of course, that the ASP is not responsible under any circumstances for the protection of your data during a natural disaster, have your tech lawyer redraft that clause.

An ASP can make sense for your business. Just be sure that your agreement with them is meaningful and protective of your interests. Don't assume that because it's a standard form that they won't negotiate it. Experience tells me that they will.

Mark Grossman's "TechLaw" column appears in numerous publications. Mark Grossman has extensive experience as a speaker as well. If you would like him to speak before your group or corporate meeting, please call (305) 443-8180 for information.

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