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ASPs and the Case of the Customer Disconnect By Dean Davison September 21, 2001 The ASP market began with massive euphoria in 1999. The promise of market growth was based on an open market dubbed the "Internet economy," which would enable dramatic improvements in business processes. It would also eliminate the need for internal Information Technology (IT) operations. Unfortunately, most ASPs focused on the upside of the Internet economy while generally ignoring critical operational concerns of potential clients. The power and potential of the Internet economy has been discussed widely. Nearly every person in the civilized world has heard, read and pondered how the Internet impacts his or her day-to-day activities. What is generally ignored is when the Internet economy changes our lives. When has been the core debate surrounding ASP market predictions and remains the primary obstacle for ASP business development today. Two years ago, ASP evangelists stated that the market would be won or lost in 18 months. META Group advocated that the market would begin in 18 months (mid 2001) and that growth would continue at 50-100 percent a year through 2007/8. The market is growing today, although vendors are failing — in part from economic uncertainties and in part from euphoria-driven business models. Large vendors are entering the xSP market (see, Compaq's OnDemand and EDS' Continuum of Services) which signals a higher level of maturity in pricing models and market acceptance. Take a Walk on the IT Side META Group advises the leading Global 2000 companies on IT strategy. When contacting META Group about the "ASP question," the majority focus around "when will the ASP market be mature enough for mainstream corporations?" To answer this question, we must step outside ideas of market growth, set aside Internet economy opportunities and walk in the shoes of a senior IT manager. The average IT manager supports a business organization. The business has a routine way of operating, it depends on the IT organization for PCs, laptops, wireless devices, and applications that run the company — such as human resources and finance. The IT organization has solutions that keep the company running applications, help desks, data centers and so on. Moreover, IT managers have operational processes — routine ways of handling issues ranging from buying a new PC (procurement), solving a problem (problem resolution) and making changes to critical applications without causing problems (change management). The IT manager is concerned with keeping these processes running smoothly, hiring people that are competent and maintaining alignment with changing business needs. Within this context, emerges the Internet economy and ASPs. IT managers cannot look at only the upside of ASPs; they must balance opportunity with the risk of upsetting ongoing business and IT operations. And this is where ASPs have generally failed. A Show of Competence The average ASP has been unable to demonstrate experience and competence in ongoing IT operations — command & control, change management and problem resolution. Even meeting promised service levels has been an issue. Increasingly, IT organizations will not be satisfied with mediocre responses, but will insist on established operations and effective practices. Let's take a look at three key IT operations and how they impact ASPs: Command & Control Despite the "Internet economy," IT organizations know that applications run on infrastructure and that ASPs need to manage servers and network devices from a central location. The infrastructure need not be internal, but the use of best practices to manage that infrastructure, including activities such as disaster recovery. (One client had a potential vendor describe its disaster recovery plan as "nightly backups.") Change Management The process by which changes are made to stable operating environments is called change management. Participants range from data center managers to help desk personnel. ASPs must demonstrate that processes are defined, followed by staff, and then integrate change management processes with the IT organization. Until basic operational issues such as change management are standardized and integrated (which does NOT mean that clients merely adapt to vendors), the IT industry will be constrained from the free-flowing ideas of the Internet economy. Problem Resolution Similar to change management, problem resolutions processes must be established. Problems are more complex, however, as the vendor and IT organization must handle the escalation of trouble tickets (both to and from each other), document handoffs and exchanges, and conduct root cause analysis. When focused on the operational realities of IT managers, the euphoria of the Internet economy becomes tamed as we realized the significant maturation gap that lies between current operational demands and most xSP vendor offerings. ASPs have increasingly improved both answers and quality of operations. However, mainstream IT professional still perceive widespread failure among xSPs. META Group research indicates that 80 percent of XSPs have had significant performance failures in the past six months. Major failures are unacceptable to IT managers. IT Want Assurances, Not Credentials The reality is that any outsourcing relationship is complex. The failure of vendors to meet contractual service levels has undermined a traditional trust within the services industry. The failure of vendors to perform, when they really thought they could perform, has created a backlash within IT organizations that are now unwilling to trust or engage with smaller, startup organizations — regardless of the executive team's risumis. The future clients of ASP services will require significant evidence of capability, proof of longevity and a history of reliability.