"If this article doesn’t save you $80,000 this year, we’ll gladly...
Well, we don’t know what we will do except refer you to our information sources. We do hope we have caught your attention, because this month’s article is about how to save money on technical costs using Application Service Providers (ASPs).
What is an application service provider? Basically it is a company that rents you bits of software, generally over the Internet. Instead of purchasing all of the equipment and software you need for your personnel, you enter into a contract to pay the ASP a set monthly rate for access to the software you need. Some ASPs also provide equipment.
Getting back to the $80,000 we mentioned earlier, you probably want to know how an ASP will save you that much money. The theory is that you will not have to invest in server equipment and certain other infrastructure, along with software, if you utilize the services of an ASP. Additionally, you won’t need the in-house technical expertise required to sustain a system if you use an ASP.
The following example of the savings from a 15 person office for a Microsoft Office 2000 setup is from eSERVER.com
Monthly costs (annualized) 66,600
Total in-house costs $87,700
Monthly (annualized) 6,288
Total eSERVER costs 7,888
eSERVER savings in first year $79,812
As you can see, according to eSERVER, you can rack up some pretty big savings by using their services, but is this really true? That depends on a number of factors. Let’s take a closer look.
First, what does your current infrastructure look like? If the only network you presently have access to is NBC, CBS or ABC, you probably do have the ability to benefit significantly on initial costs from the eSERVER model.
On the other hand, if you already have the hardware and server software you need, your only savings may be the cost of the software you would otherwise be acquiring from eSERVER and your monthly maintenance costs. As to whether the actual monthly costs would be $5,500, that is another question, but it is likely the overall monthly maintenance cost will be at least $6,000 per year when you take upgrades and other repairs into account.
At first blush, then, utilizing an ASP may seem to be an economical way to go. Even if you don’t save significant hard dollars, the gain in productivity from using personnel to attend to business rather than computers, and having the latest version of software on all workstations, may be worthwhile. However, you do need to consider a few things.
Who needs the software?
The practicality of using an ASP may be nil if you have a workforce that is constantly on the road. Since we are CPAs, we’ll use an example that is near to our heart – audits.
If the 15 person firm in the example used by eSERVER is predominantly an audit firm, that means up to half of the people (or more) could be on the road at any given time. Most auditors need some sort of office suite, workpaper preparation program and various other analytical programs.
It is not very likely each auditor will have access to an Internet connection in the field. It is therefore unlikely that this type firm will significantly benefit from the ASP model (unless you want to spend the extra money for wireless).
What kind of software should I outsource?
The type of software you should obtain from an ASP depends on the cost of the software you need. No offense to Bill Gates, but his product is sometimes expensive. The typical full version of Microsoft Office Standard is around $400.00 and this doesn't include all the offerings that are part of the complete Office product line. This makes Microsoft Office a perfect candidate for outsourcing - if you need a lot of licenses.
The typical mid-range accounting system may also be a candidate for outsourcing. With the more popular systems ranging from $10,000 to $30,000 for standard multi-user systems, an ASP may be able to reduce your costs.
On the other hand, if you are using a low cost program throughout your organization, it may well be to your advantage to simply purchase enough licenses to meet your needs. In the end, the only accurate way to determine the right move is to calculate all the costs, including the intangible personnel costs.
Perhaps the most important item to consider in determining which software to outsource is your expected growth. The more static your business is, the less you will need the ability to rapidly adapt to changes in personnel, equipment and information systems needs.
How do I find these ASP guys and how do I know who to use?
We wish we could say ASPs were on every corner and that they were a dime a dozen, but they are not. The industry is in its infancy so we recommend that you be very cautious.
One of the biggest problems you’ll find in trying to connect with an ASP is that you don’t have any references among your local network of friends – at least most of the time. This will require you to perform an Internet or similar search. Without trying to limit you, two sources are ZDNET’s ASP Finder
or The List of ASPs
. Both of these sites are fairly comprehensive. There are, however, many others.
Once you have found your ASP list, you’ve only begun the selection process. From this point, you will need to approach each potential provider with a very serious list of questions such as:
- How long have you been in business?
- What kind of financial backing do you have and what are your future plans?
- Who are your partners in the venture?
Realizing that every service provider will be relying on various vendors to supply their hardware and software needs, it’s plain to see that you don’t want to rely on an ASP that is aligned with shaky partners.
What about backup and data security?
The list could go on, but you should get the idea that selecting an ASP is virtually the same as selecting your own in-house system, except much more complicated.
Information technology (a/k/a “the stupid computer”) is becoming an increasingly important part of our daily business lives and finding the right products can be time consuming and expensive. Even after we get a computer system in place, monthly and annual maintenance can be expensive.
Combating the budget busting hardware and software monster can drive even the sanest person crazy. Application Service Providers can serve as our White Knights when properly used, but the search process can be time consuming. Give us a call and let’s talk about how we can help you find the right solutions for your business. Let us do the legwork so you can concentrate on your business.