Applications: Rent or Build?

Let the landlord handle the maintenance

In the early days of data processing, computers were expensive and timesharing was common. Instead of owning a computer, you rented time, space, and applications on a centralized computer. Your worries about maintenance were virtually nonexistent: no configuration, no servers, no PCs.

Today, you can once again rent time, space, and applications on such a centralized computer. You simply work with an application service provider (ASP). Rather than set up your own application infrastructure, you let the ASP take care of it while you merely display the applications on a terminal.

How Does It Work?
Two common means of delivery are Web-based applications and Win32-based applications in a Windows NT 4.0, Terminal Server Edition or Citrix WinFrame environment. One ASP uses Citrix technology and rents 80 applications. This ASP charges a monthly fee based on the number of applications and service level agreement (SLA). For example, one customer using a financial trading application might want 99.97 percent uptime. Another customer using Office 97 and an enterprise resource planning (ERP) package might want 99.7 percent uptime. Each customer pays based on his or her application mix and service level.

ASPs can mix Web-based and Win32-based applications easily. Using Citrix or Terminal Server, they can deliver Win32 applications via a standard Web browser. Although such technology exists, licensing these applications isn't easy. Microsoft will sell you an Internet license of Terminal Server that allows up to 100 simultaneous users, but no such license exists for other Microsoft applications such as BackOffice and Office. That situation will soon change. Expect to see ASP-friendly (i.e., concurrent) licensing of all Microsoft products. Why? If Microsoft doesn't provide concurrent licensing, ASPs will look to Web-based applications exclusively. Eventually, Microsoft will make many of its business applications browser-based and simplify life for ASPs.

Often, an ASP can get a new customer up and running in a fraction of the time that the customer requires to configure a local client/server environment. Also, the total cost of ownership (TCO) can decrease significantly when the ASP updates applications or when a customer can skip a round of PC upgrades. An ASP can update a client application quickly because all changes occur on the host. On the client side, the terminals receive only display information, so customers don't need the latest equipment.

Who Needs ASPs?
ASPs might find success with small businesses. IBM, Microsoft, and Novell all offer small-business solutions, but many small businesses can't deal with servers, PCs, network and application installation, configuration, and maintenance.

Many solution providers have stopped servicing small businesses because margins are lower and support costs are higher than with mid- to large-sized customers. However, ASPs can place terminals in small businesses, and the customers can rent applications (including some that are too expensive for them to purchase). The small-business owners pay a flat monthly fee for each device and receive better service than they could achieve alone.

How does this ASP model apply to medium and large companies? Here are two examples. Last year, an ASP called me about renting a reader-service application. Up to that point, to provide information about advertised products, Windows NT Magazine had included a paper insert that required our readers to circle reader-service numbers. Readers then had to mail the card to us. We now have that ASP's Web-based application, NTDirect. It lets readers receive faster responses from advertisers via fax, email, phone, or Web.

Our investment paid for itself in less than 1 month, and the setup was easy. This ASP-based application works, it paid for itself quickly, and our responses went from 300 to 5000 in the first month.

Recently, I met with an IT strategist for a Fortune 500 company who needed to supply applications to a new manufacturing plant in Mexico. Rather than set up onsite servers and PCs and offer support in Mexico, he placed terminals in the plant, running all applications from a San Diego, California, location. No onsite personnel, PCs, or servers are necessary at the Mexico site; all support comes from San Diego. The terminals are such simple devices that if they break, a nonskilled worker can replace them. The Mexico-based plant is renting applications from its US host.

Build or Rent?
If you can solve a problem by renting an application from an ASP, why do you need central IT for everything? You don't. The next time you think about building a solution inhouse, consider renting instead. Let the landlord handle the maintenance.

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