The defining moment
- By Heather Harreld
- Oct 29, 2000
When a federal agency turns to an application service provider to outsource
its e-mail or enterprise resource planning applications, the ASP usually
brings welcome relief from the burdensome operations and upkeep associated
with those applications.
But it also means those mission- critical applications are moved out
of an agency's information technology shop to a private company's data center.
The service-level agreements that agencies negotiate with ASPs before migrating
those applications lay out the costs and deployment schedules for outsourced
services and are the agency's central window to the performance and security
of the enterprise applications.
Players in the growing ASP market own the hosting servers and often
the software licenses for myriad enterprise applications including messaging,
enterprise resource planning and customer relationship management software.
The service provider handles the customization, upgrades and maintenance
that the applications require, and the agency then "taps the apps" via the
Internet or a private network while paying either a flat subscription fee
or a per-user fee.
That sounds simple enough, but an ASP arrangement is not simple. Agencies
shopping for an ASP will find that there are several core components to
negotiate with the provider before outsourcing an application, including
hardware and application availability, service and service response times,
security, application customization, pricing and disaster recovery.
The success of the eventual deal depends on how well an agency does
its homework before the application goes up.
First Things First
Most negotiations begin with defining cost and availability, which provide
the underpinnings of service-level agreements.
Typically, enterprise applications cost about $800 per user per month,
said Jessica Goepfert, a senior ASP analyst at IDC, but they can cost as
little as $5 per user per month for low-end applications with no customization.
It takes about 90 days to roll out an enterprise application, she said.
One of the first issues most agencies will address when working with
an ASP is availability. Because the ASP industry is a relatively new player
in the IT market, most companies have molded their service-level agreements
on the types of guarantees Internet service providers offer, ensuring 99
percent server uptime or higher, depending on the application.
Still, 99 percent uptime could mean up to a week of application downtime.
Many ASPs offer a basic level of 99.5 percent or 99.7 percent, with the
option of building more redundancy into the offering for more money, typically
raising the price by 10 percent to 20 percent until reaching 99.9999 or
99.99999 percent, which requires full redundancy and costs substantially
However, although many ASPs guarantee server uptime, some companies
have begun encompassing application performance in their availability guarantees.
For example, Qwest Cyber.Solutions offers 99 percent, 99.7 percent and 99.99
percent application availability as part of three levels of offerings (see
"Checking up on your ASP," Page 38).
The levels range from 7 hours and 20 minutes of downtime per month to
no more than 4 minutes and 22 seconds for selected platforms. The company
also includes service response times, CPU usage on the application server,
storage usage, disaster recovery services and customer satisfaction levels
in its service-level agreements, said Brad Clay, Qwest Cyber.Solutions director
of product development.
"Every single customer that we've talked to...has talked about, "Well,
what do I get if the center where this is stored blows up?' " he said. "We've
looked at recover points and recovery times and made [them] part of what
we deliver. If you can't deliver operationally, none of those nice bells
and whistles matter."
In addition to application availability and high performance, customers
want to ensure that the ASP responds to problems as if they were their own,
Clay said. Qwest has financial accountability tied to all aspects of its
service-level agreements, including guarantees on customer satisfaction.
The company regularly surveys its customers via a third party to gauge satisfaction.
If the overall score of each customer is not "satisfactory" or above, Qwest
will offer customers a credit on their monthly bills.
Infinium Software Inc., which offers a variety of enterprise applications
including enterprise resource planning modules and customer relationship
management software, also places a premium on keeping its customers happy,
said Dyanne Griffin, director of ASP marketing at Infinium. In addition
to offering the standard 24-hour-by-7-day customer help-desk services and
support, the company employs "customer care managers," who are dedicated
solely to supporting a small group of customers and handle any problems
the group may encounter.
"They can go to that one central person, and that person is compensated
on how happy that customer is," Griffin said.
In addition, Infinium says it can offer better customer service because
the company owns all the businesses involved in its ASP offering and therefore
has more control, Griffin said. Some ASPs may pass service calls to a partner
company. In that case, potential customers would need to inquire about secondary
service-level agreements between those companies because support response
times could be affected by those guarantees, she said.
Although ASPs typically include response time for support in service-
level agreements, they often do not guarantee a repair time, IDC's Goepfert
said. In addition, agencies should also negotiate response times for less
critical work requests, such as a customization or an upgrade to an application
after rollout, she said.
When an agency outsources applications, security and disaster recovery
are also top concerns. Infinium personnel need a passcode and identification
card to get into the company's data center building. In addition, employees
are required to enter a passcode, show an identification card and pass a
biometric scan to access the network operations center.
"Once you're in there, there's another glass wall...but there are only
three people who are allowed in that area," Griffin said. "You can't get
in. We like to call it Fort Knox. Even if you get into the building and
into the data center, the customer owns the data. They have control. They
set the policy for database access."
Infinium offers three connection options: private network, virtual private
network or dial-up access. If any of those connection methods fails, another
will automatically be available for access.
In addition, all equipment in the building has a hot spare, and three
diesel generators are in place to be used if outside power is unavailable.
In fact, the company stores 50,000 gallons of diesel fuel, enough to sustain
its customers' applications for a four-week-long power outage.
Customizing ASP Apps
Because the ASP model is built on a business model of offering the same
applications to multiple customers, the industry average for software customization
is 20 percent, with 80 percent of ASP offerings coming out of the box.
"The ASP model is built upon repeatability," said Jim McGlothlin, vice
president for the federal government at PeopleSoft Inc. "If you open up
an ASP and say, "I can host anything you want...and I can customize upon
demand,' you're not really an ASP."
PeopleSoft can typically customize up to 15 percent of an application
in areas where customers usually have vast differences in their operations.
For example, although credit card reconciliation within a financial module
can usually be standardized, the receiving systems can be customized depending
on an agency's mission.
"The process of receiving at a Navy depot is going to be very different
than a receiving process at a State Department installation overseas," McGlothlin
For an enterprise application for a small agency, PeopleSoft typically
charges $10,000 to $15,000 per month, with subscription fees for larger
agencies ranging from $30,000 to $50,000 per month. Although many commercial
ASP customers may be satisfied with "renting" applications from an ASP,
the government market has refused this typical ASP model, he said. As a
result, PeopleSoft offers special clauses that stipulate that government
customers own the applications the ASPs are hosting.
"The federal government absolutely insists upon the right of ownership,"
he said. "They wanted the assurance that they would have the ability to
migrate and run it themselves or go elsewhere."
USA.net, which manages 15 million mailboxes, 60 terabytes of data and up to 30 million e-mail messages per day, offers the standard feature sets for outsourced messaging, including read/write features, address books and calendaring features. Additional customization is developed and introduced in response to customer demand. The company responds to requests for customization by partnering with third-party vendors for technology that can plug into USA.NET's unified message store, said Scott Chasin, chief visionary officer at the company.
USA.net offers three platforms, with its standard Web mail costing $3
to $6 per user per month, an enhanced package that costs $6 to $18 per user
per month and a Microsoft Corp. Exchange platform, which costs $25 per user
Although service-level agreements are a useful way to match customer
expectations and vendor assurances, they are by no means an insurance policy
against all the possible customer losses if the ASP's service goes down
even temporarily, according to Greg Blatnik, vice president of Zona Research
"It's not a magic bullet," he said. "It's not the Holy Grail to you
having lax or ineffective internal procedures. It's first and foremost a
marketing document... that really limits the liability that an ASP is going
to incur. It's not going to compensate for the impact on a business for
some amount of downtime or some failure to respond."
Harreld is a freelance writer based in Cary, N.C.