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Web-Service ASPs

by Phil Wainewright (with Doug Kaye)
July 22nd, 2003

A new breed of on-demand outsourcers, the best-known being, offer a hosted service model that's as different from old-style application-outsourcing ASPs as chalk is from cheese. Doug Kaye, host of IT Conversations, recently asked Phil Wainewright what these web-service ASPs have to offer organizations today. This is a transcript (with Doug's questions abbreviated) of the middle section (11'30 - 19'18) of the recorded audio.

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There's a false security in investing in all this custom-built, custom-configured software that you've installed in your premises that is still there even if the provider goes bust. Because what you've gained is inflexibility.

Phil Wainewright is CEO of Procullux Ventures, the publisher of the Loosely Coupled website. He previously founded, the premier website covering the ASP sector, and is recognized globally as a leading authority on ASPs and hosted services.

Glossary terms: ASP, hosted, customization, on demand, business process, lookup tool

You can hear the full interview — including Phil's advice on who should outsource, what they should outsource, and how to select and manage ASPs — at the IT Conversations website.

DK: What are the non-technical barriers to the adoption of these concepts?

PW: The biggest barrier is fear of loss of control. I think that's to do with the way that software's been used in the enterprise in the past. When a company has put in something like SAP or Peoplesoft, they've not only put their data inside that application, but in configuring the application and customizing it to the way that they work, they've actually hardwired a lot of the way their business works into the application.

What we're seeing with web services at the moment is that there's starting to be more work done to separate out the business logic in an application from the application logic. But until that separation's been completed, then to some extent, the way that your business operates gets locked into the software that you use. And if you don't own that software, if that software is hosted by a third-party provider, then that provider effectively holds your business hostage to some extent.

If you've bought the software and you've installed it on your own premises and you own it, you may still not be able to change it, but at least you know, well, you've got it — it can't ever stop being something that you can use, because you actually have it on your premises.

DK: It sounds like outsourcing increases my risk.

PW: Well, it does and it doesn't. If you go to an outside provider and use hosted software, you can actually have as much control over your business process if it's software that has a lot of configuration capability in it — a lot of delegated configuration capability it's called, because the user can do it rather than the software owner doing it. But I think that there's another step that needs to be made, which is to move towards being able to export business process logic and business process definitions from one software package to another. That's the promise of BPM — business process management — but it's much more of a promise than a reality today.

DK: Taking an example that's in the news right now, if I had outsourced my application to the equivalent of a Peoplesoft and Larry Ellison had come in and shut that down, I don't have running software to fall back to. I'm totally dependent on that outsourced implementation.

PW: In the scenario you've described, the organization is horribly exposed; and therefore it shouldn't be like that. But when we're talking about companies like and Atomz and OpenAir, we're talking about companies that charge you on a monthly basis. In theory, their customers can leave them any month and go somewhere else. In practice, as I say, the more you've invested in running your operations on that software, then the more tied you are to that provider.

DK: But I'm going to make a significant investment. Certainly, the integration isn't reusable, and even the business logic, is it going to be salvageable so that I can easily move it to a competitive environment?

PW: Let me give you two answers to that. Yes, that's absolutely true, it's difficult to move today, and that's why the standards are important — to develop standards that make it more easy to swap between one provider and another provider, in terms of transferring data, in terms of doing integration, and in terms of swapping out business logic. That work needs to continue.

But the other thing that I would say is that there's a false security in investing in all this custom-built, custom-configured software that you've installed in your premises that is still there even if the provider goes bust. Because what you've gained is inflexibility. So you've got this facility at the expense of using software that is always designed on the assumption that you're going to use that software and never anybody else's — software that's designed on the assumption that it's all you need so it doesn't have to link to anybody else's software.

DK: What would be your overall recommendations to anyone attempting to outsource their applications in this way?

PW: If there was one point that I really wanted to get across today, it's that you're getting into a relationship, and that's something that the IT industry has not been very good at in the past. It's almost like — if you'll excuse the analogy — the difference between casual sex and marriage. In the past, the IT industry has been in the habit of delivering a solution, and then running away as quickly as possible. And in a service provider relationship, that can't happen. It's a relationship that has to be nurtured and has to last over time. And even if you are in a position where you can back out of that relationship on a monthly basis, the service provider would like to think that you will be buying their service for the next ten or twelve years at the very least — that's the average that ADP, the payroll processor, achieves with its customers, and that's what most ASPs and web service providers I think would aspire to. So you're getting into a long-term relationship — and therefore the fit has to be right.

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