STRATEGIES

February 17, 2003

Human resources software has always been seen as a natural for delivery using the ASP model. That's because much of any HR department's role is administrative, and although important, HR is not usually seen outside its own department as providing any key competitive advantages to a company. In other words, HR software's not sexy — but you've got to have it. So why not get it more affordably from an ASP?

All That and More
As it turns out, HR is a great market segment for ASPs, but not just for the reasons above. HR applications can certainly be delivered down the wire by an ASP and used as effectively as if they were run in house, but there are several benefits to an end user of using an ASP HR solution that simply can't be enjoyed by any but the largest enterprises running their own HR software.

Alongside the oft-touted ASP benefits of freeing up in-house IT resources and lower overall costs, companies like Norcross, Ga.-based ASP Employease use the ASP model to offer customers scale-based advantages. For example, it can incorporate best practices from all its customers into the software to try to ensure that administrative procedures are carried out as efficiently as possible by all.

Employease At a Glance

Headquarters: Norcross, Ga. Employees: 100 Customers: 1,000 Finances: Revenues: Not disclosed Expects to be profitable in 2003

More importantly, Employease can use economies of scale to make connectivity projects worthwhile. For example, HR departments need to get information such as payroll and medical data to other organizations, but traditional HR applications often automate only the generation of the paper work, which then needs to be re-keyed manually. "We can manage transfers of data from our customers to their payroll outsourcers or medical insurers directly, providing the connectivity by building the appropriate data connections, which only the largest companies could afford to do before," Mike Seckler, Employease's vice president marketing and business development, told ASPnews.

Ironically, one of the criticisms often aimed at Web native application vendors is precisely that it is difficult to connect these systems to third-party, or customers' existing, systems. In fact, Employease makes it more economical to export data to other organizations because the cost is effectively shared with other Employease customers who need to export data to the same third parties. To connect to customers' own in-house systems, Employease can't leverage economies of scale but it does offer a professional services team that can help get data into the right form or set up real-time transaction processing using XML to interchange data.

Adding the Missing Links
What about links to other Web-native vendors? Seckler says it is inevitable that Employease will form such links to increase the functionality of Employease to its customers, and in fact this has already happened. The company has embedded background check functionality from PeopleWise (part of Ohio-based Lexis-Nexis Group) into Employease. When a check is requested from within Employease, the data is actually passed to PeopleWise, the check carried out and the results returned to Employease. Customers are billed by Employease for this service, and the company, in turn, passes on the fee to PeopleWise.

Another HR ASP that aims to integrate its application within others, where possible, is Phoenix, Ariz.-based tax credits claim software ASP ITax Group. ITax software can be embedded into hiring management systems so that as companies recruit new employees they can ensure they claim any federal or other tax credit incentives that are available. The software can be used as a separate standalone product accessed over the Web.

ITax Group At a Glance

Headquarters: Phoenix, Ariz. Employees: 150 Customers: 50 Finances: Revenues: Not disclosed Profitable since inception

ITax Group is more than an ASP. That's because as well as offering its application it also backs this up by offering a team that carry out most of the administrative procedures involved in claiming the tax credits. Effectively, it is a tax credit claims outsourcer that happens to have software that it needs its customers to use, and therefore supplies it to them using the ASP model. In fact, it is not tied to the ASP model, and would allow customers to license and run the software in house if they insist.

How Much Does It Cost?
It's interesting to examine the different ways that these two companies charge for their services. Employease, which enhances its functionality with PeopleWise, charges about $4 to $8 per employee per month. ITax Group, which may be embedded into recruitment applications, charges its customers between 7 percent and 25 percent of the tax credits that it reclaims on its customers' behalf. "This ensures we are highly incentivized to perform well," Wayne Neale, Itax's vice president of marketing, told ASP news. Both companies charge a one off set-up fee as well.

As predicted three or four years ago, HR has turned out to be an excellent sector for the ASP model to operate in. But it's clear that there remains more than one way of delivering HR applications, more than one way of charging for them, and — with applications embedded within others — the end user may not have any direct business relationship at all with the provider of some services. It's all a great deal more complicated (and potentially more beneficial) than ASP-enabling a single HR application and renting it out on a monthly basis.

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