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"Although the midmarket wasn't overly impressed by the pre-packaged, "cookie-cutter" solutions that the first-generation providers had to offer, some larger enterprises found the notion of outsourced ERP attractive, and ASPs gradually found their place in the market." Give us your feedback on how ERP software vendors have helped or hurt the ASP market in the ASPnews Discussion Forum

By the end of the 1990s, no big company felt its IT infrastructure was complete unless it had at least begun to implement ERP software from one of the top-tier vendors. Known collectively as BOPS — Baan, Oracle, PeopleSoft and SAP — these vendors' ERP suites provided all the core software functions required to run a corporation's back-office operations.

The Roots of ERP
The term ERP was coined as an extension of an earlier class of software known as manufacturing resource planning (MRP). Whereas MRP allowed manufacturers to track supplies, work-in-progress and the output of finished goods to meet sales orders, ERP was applicable to all types of business, and added company financials, payroll and human resources management.

Implementing ERP across a complex enterprise gave management a consolidated view of operations that they had never had before. A well-designed ERP system streamlined paperwork, increased efficiency, and made it possible to produce consolidated management accounts in days rather than weeks or months. For obvious reasons, financial officers fell in love with ERP.

But not everyone got the benefits they expected. ERP suites required an expensive and protracted customization and implementation process, and they gained the reputation of being costly, complex and cumbersome to implement. For smaller companies in particular, the size of investment and the in-house skills required to install and operate ERP software were beyond their resources. Vendors realized that, once they had finished selling their software to all of the world's largest enterprises, expanding into the broader midmarket tier would require a different approach.

Enter the ASP
That's where the first generation of ASPs came in. USinternetworking, Corio, Oracle Business OnLine and others launched with the aim of delivering hosted ERP solutions to mid-sized companies at a predictable monthly cost. The rest, as they say, is history. Although the midmarket wasn't overly impressed by the pre-packaged, "cookie-cutter" solutions that the first-generation providers had to offer, some larger enterprises found the notion of outsourced ERP attractive, and ASPs gradually found their place in the market.

In summary, here's how the leading ERP vendors have fared to date with ASPs:

SAP
As the world's leading ERP vendor, many observers felt that German software giant SAP was the one to watch in the early days of the ASP market. Several partners started developing ASP services, including EDS, Qwest Cyber.Solutions and Interpath. SAP formally confirmed its commitment to Internet-based outsourcing in May 1999. But the company was betting on telecoms providers to become big players in the ASP market, and in the meantime expected ASPs would make up only a small proportion of its total revenues.

Several ASPs that had standardized on SAP software subsequently lived up to this prognosis by closing down, including Pandesic, a joint venture with Intel that shut its doors in July 2000, and Hostlogic, which followed suit in January 2001. Successful partners have seen themselves more as application outsourcers than as ASPs, such as BlueStar Solutions (formerly eOnline). SAP also offers hosting under its own brand, using Hewlett-Packard and EDS as its preferred data center providers.

Oracle
Often seen as the also-ran among the top ERP vendors, Oracle saw itself gaining a valuable competitive edge by offering online delivery of its ERP suite, Oracle e-Business. The company's founder and CEO Larry Ellison was so bullish about Internet-hosted ERP that he couldn't help pre-announcing details of his company's plans for an ASP division back in early fall 1998.

After a lengthy pilot period, Oracle Business OnLine had its worldwide launch a year later. At first, Oracle refused to recognize third-party ASPs for its ERP suite, but finally introduced a partner program in July 2000. The company's official view is that third-party ASPs can't survive in the long-term, and a number of now-extinguished shooting stars from their ranks, such as Nupremis and BlueMeteor, seem to bear out that view. But the continued success of Silicon Valley-based ASP partner Appshop provides evidence to the contrary. Oracle's Business OnLine division has now been subsumed into Oracle.com, the company's brandname for all of its online services offerings, and last year added remote support as an alternative to outright hosting.

PeopleSoft
As its name suggests, PeopleSoft started life offering human resources management software, but quickly expanded its scope to cover the full range of ERP capabilities. The company gained early visibility as an ASP vendor when both USinternetworking and Corio launched with PeopleSoft as their cornerstone ERP offering.

PeopleSoft later launched its own in-house ASP division, but partners such as Corio, USi, Surebridge, Transchannel and Interpath still account for most of its ASP customer base.

JD Edwards
Seattle-based startup WTS became the first north American ASP to begin offering ERP software when it set up shop in 1997 with backing from JD Edwards. Now regarded as one of the top-tier ERP vendors, JDE had traditionally focused on smaller manufacturing and vertical industry businesses. Its management therefore actively fostered the creation of an ASP channel as the concept took hold, both in the U.S. and internationally.

A brief foray with an in-house ASP division, launched in January 2000, was quickly shelved that summer. Although its most strongly backed ASP partner, Aristasoft, closed down last year, others continue to thrive, including WTS, Prentice Technologies and Virtual ESI.

Lawson Software
Until its Nasdaq IPO late last year, Lawson Software was still a family business. Co-founder Richard Lawson continues today as chairman, but with annual revenues nudging half a billion dollars, Lawson is no minnow. The company's strong growth in recent years has been aided by its active support of ASPs in its channel, including some enterprises that have launched Lawson-based ASP offerings to their small business clients. Leading Lawson ASPs include Agilera, EYT, Metanext, Mirus, netASPx and USi.

Microsoft Great Plains
Microsoft's surprise acquisition of mid-tier ERP vendor Great Plains in December 2000 owed much to the smaller company's experience of working with ASPs. Now closely aligned with its parent's .Net strategy, Great Plains last year named an elite band of certified ASPs. One of the best-known is ManagedOps, which specializes in hosting the software on behalf of other authorized Great Plains partners. Other ASPs with a significant Great Plains customer base include EYT, Outtask, Surebridge, Veracicom and Vobix.

Smaller players
Enthusiasm for the ASP model spread like wildfire among smaller ERP vendors, and most had launched an ASP initiative by the end of the year 2000. Unfortunately few were successful, and some found the experience to be positively calamitous.

One of the successes was Danish ERP vendor Navision, which, having merged with former rival Damgaard in December 2000, emerged with Europe's largest ASP partner base. Troubled Dutch ERP vendor Baan never even got the chance to launch an ASP program before financial woes and management turmoil brought it tumbling from its former top-tier ranking.

U.S.-based mid-tier ERP vendor Infinium was one of the more serious casualties. After heavy promotion and significant investment, it closed down its ASP unit last October, writing off $7.9 million in charges. Finally, there was Biztone, the startup that aimed to obsolete conventional ERP software with a Java-based suite, written from the ground up for delivery as a Web service. Sadly, last year's funding squeeze left Biztone without the finance it needed to take its offering to market, and the venture closed down, its ambition unfulfilled.