03/ 27/ 2002
by Alan Joch
BizLand Inc. wasn't ready to take on more IT headaches when it decided to upgrade its accounting software last year. So instead of buying expensive new hardware and software, the Internet company hired an Application Services Provider (ASP) to run the financial package on its own computers and rent access time to BizLand.
In exchange for a set monthly fee, Burlington, Mass.-based BizLand buys some peace of mind from not having to manage its own software. Monthly fees for ASPs vary widely, from about $7 a month per user for a simple application like an electronic timesheet, to $600 or more a month per user for a complex CRM (customer relationship management) application and the attending service and support.
"It's a really nice change for me," says Megan Downsbrough, vice president of operations and finance, and someone who used to mediate between the IT department and software vendors when systems crashed.
One of the keys to BizLand's ASP success is the service level agreement (SLA) Downsbrough helped negotiate with ManagedOps, the service provider. In addition to fees, the contract spells out ManagedOps' responsibilities and any contingencies if the system breaks down.
"An SLA is like a prenuptial agreement--you hope you never have to invoke it," says Paula Hunter, chairperson of the ASP Industry Consortium in Wakefield, Mass.
If an SLA is invoked, however, it becomes the best defense to keep your company from grinding to a standstill. Here are some critical components of an effective SLA.
Teamwork. Appoint a leader to negotiate the SLA, but back up that person with someone who will use the rented software regularly and with your company's formal or de facto IT person.
Watch the details. While basics like fees are important, don't gloss over less obvious potential trouble spots. Get the SLA to specify your right to access the application any time, not just during normal business hours. Guard against hidden fees for using the application more than normally, such as during the crunch period when you close the year-end books. And get guarantees for how quickly the ASP can switch over to backup computing resources should the service crash. Remember, your company may not be able to function until the ASP gets back on its feet. Many ASPs outsource tasks to partners, so make sure the SLA is binding to any third parties.
Treat your data like gold. Spell out that you will always have access to your data, even if you terminate the SLA before it is scheduled to run out. Have a lawyer review your SLA.
With the right service agreement, a small company can focus on its core business and not let technical details sap its energy. "An ASP definitely alleviates a lot headaches," Downsbrough says. "Which can take the line item for aspirin right out of your IT budget."
ASP Checklist
The ASP industry is still dominated by young companies that may or may not be able to deliver what they promise. How can you tell the pros from the wannabes? Interview client references and ask questions, including these recommended by the ASP Consortium and ASP subscribers:
- What will my total cost be, including standard monthly charges, one-time setup fees, special fees for heavy usage, and costs to add new users as my company grows?
- Will you integrate the new application with the other software we use?
- Will I need to buy additional software or hardware to support this application?
- What services do you contract third-party partners to provide?
- What security technologies do you use to keep outsiders out of the system?
- Describe the systems that are in place to keep my application up and running if the main system crashes. How long does it take to switch over to the backup system?
- How do you protect against data loss? How often will my data be backed up?
For more information, visit the ASP Industry Consortium's Web site at www.allaboutasp.org.
This article originally appeared in the February/March 2002 issue of MyBUSINESS Magazine.
