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Small companies and start-ups save on upgrades and maintenance by leasing programs over the Internet.
By Roger Harris
For all of the benefits that technology offers a business, maintaining an efficient information system can be one of the most frustrating – not to mention expensive – issues facing a company. Businesses that fall behind the technology curve risk more than red ink, especially as the world becomes increasingly dependent on electronic commerce.
On the other hand, constant upgrading of software and hardware can suck thousands of dollars off the bottom line. And finding skilled personnel to manage an information system isn't easy in a booming economy with unemployment at a 27-year low.
What's a harried executive to do? Software leasing surfaces as one solution to the dilemma of spending big dollars on a program with a limited life expectancy. Instead of juggling budgets to deal with the unpredictable costs of upgrading and maintaining an internal software system, you can pay a monthly fee to rent access to the latest upgrades from an Application Service Provider (ASP) or a software vendor.
ASPs give customers access software via the Internet, allowing the client to cut costs and save time when deploying a new system. "You're looking at a cost savings of 30 percent on hardware and software," says Cameron Chell, president of the ASP Industry Consortium and chairman of the venture capital firm Chell.com. "The real savings, though, are in HR [human resources]."
One sign that software leasing is expected to explode: ASPs will spend an estimated $1 billion this year to upgrade their technology, according to a study by research firm Cahners In-State Group.
ASPs come in a variety of flavors, but in general they host business software on their own Internet servers. Clients pay a monthly fee to access business applications that range from procurement and distribution to payroll and inventory control – processes both inside and outside the client company.
A number of clients may use the same software and share the same data servers, but the ASP usually provides some customization. "The whole idea behind an ASP is you have one copy of software that allows people to configure it for their needs. All the customer needs is a browser [to access it]," says Robert McShirley, chairman of Vsource Inc., a Ventura, California-based ASP specializing in Internet-based procurement systems.
Businesses large and small can take advantage of software leasing, although in practice it hasn't scaled down to the one-person-shop level yet. However, leasing can prove a great strategy for young companies with limited resources, says Paula Hunter, vice-president of marketing for C Me Run Corp., an Internet computing company in Hudson, Massachusetts. "What I'm seeing is a lot of start-ups, whether they're dot-coms or another kind of business, using ASPs as way to get into the market very rapidly," she says.
By saving the capital buying software, ASPs can level the playing field for small and mid-sized companies that otherwise would not be able to afford the latest technology, or start-ups with limited capitalization. E-commerce and customer-service software rank among the business applications with the broadest appeal for these companies, Ms. Hunter says.
However, outsourcing raises concerns about privacy and security. Vince Puente, COO of Texas-based Southwest Office Systems, the number 273 company on the HISPANIC BUSINESS 500, prefers to keep control of software systems in-house for reasons of security and customer responsiveness, although he does not rule out considering ASPs in the future.
"When dealing with vendors and dealing with clientele, responsiveness and service are critical," he says. "The less dependent we are on outside companies, the better."
The ASP Industry Consortium recognizes that clients have legitimate questions about data security and shared servers. In an effort to address these concerns, the consortium recently announced that it is sponsoring the Aspire Awards to honor "best practices" within the ASP industry. Security control will be one of the prime award categories.
"In general, there is good security in place with many ASPs," Ms. Hunter explains. "But in some respects you are asking the customer to trust you."
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