CFO Asia
April Issue, 2000
Special Report – ERP: Part Two
By Adam Lincoln

Outsourcing ERP

ASPs WITHOUT THE STING

Frunning your cooperation’s ERP applications over the web seems daunting, there is another option – the application service provider, or ASP. A high-tech form of outsourcing, ASP’s relieve businesses of large, up-front capital expenses such as the need to buy software licenses, build and maintain expensive data centers, and hire lots of high caliber IT staff. Application software is delivered over the web to client organizations, and charged either on a usage basis or monthly fee.

This new market has yet to truly define itself, partly because ASP’s comein many forms. The top five ERP vendors – SAP, Oracle, JD Edwards, PeopleSoft and Baan – all have announced strategies and alliances aimed at securing a piece of the ASP pie. Mid-market enterprise software suppliers have also jumped in. Typically these strategies entail partnerships between business consultancies, data center operators and communications network providers.  Among the latest to join the fray is Solomon Software Southeast Asia,which wants to build on its existing enterprise software client base by offering an ASP service in Singapore. To get the job done, Solomon has allied with 1-Net, part of Singapore Telecom’s broadband network, to deliver high-speed access to applications or services. US-based thin-client software specialist Citrix Systems will provide server software to assist in centralizing an installation, as well as deployment and administration of applications over any platform or client device, while SWsoft will provide engineering support. The service costs between S$1,000 (US$600) to S$7,000 (US$4,200) per month.  Indeed, a key attraction for finance executives is the ability of ASPs to makeit easier to budget for enterprise applications. While some ASP’s include systems integration as part of a package cost, usually the costs are kept separate, with the hosting of the application priced on a per-user basis. While pricing schemes vary, global evidence suggests that costs settle between US$100 to US$1,200 per “seat”, or authorized employee user, with the bottom line influenced by factors such as :

  • The number of ERP software modules to be implemented.
  • Whether the customer already owns the requisite hardware and software licenses. A company may pre-purchase these assets, then pay a third party ASP to run them.
  • The size of the installation. Larger projects typically benefit from volume-based discounts.
  • Where the application is run – on the ASP’s or the customer’s premises. For instance, if the customer uses its own data center, the ASP is less likely to assume responsibility for a disaster recovery strategy.
  • The extent of technical support.

    Charges should shrink as new ASP players enter the market, broadband communicationcharges fall to negligible levels and the companies becomes more comfortable with the concept. Although a few ASPs covet larger clients, most application hosting servicesin Asia believe SMEs present the greatest opportunity. Some observers say it’s best for these companies to wait before they sign up, or include reverse cost of living clauses into their contracts.

    In addition, many vendors plan to ditch software licensing in favor of rentals,subscriptions, transaction pricing or sales commissions. The line between infrastructure and business costs – and revenues – will blur even further. New questions will confront CFOs, such as whether commissions on sales made using an ASP’s e-business or ERP budget.Problems like these, however, are minor compared with the prospect of pricing and installing a web-based ERP system from scratch.