Thrice Measured, Once Cut
Maintaining an ASP infrastructure is too expensive and risky for most solution providers. Co-location is a good way for VARs to profit by offering hosted services without the potential pitfalls of maintaining hardware.
My company has survived as a VAR/solutions provider for 14 years. During that time, I have probably made every mistake (and some more than once) that it is possible to make in the business. Fortunately, an adherence to our principles, an exceptional staff, and a lot of luck more than compensated for my strategic blunders.
One of the most difficult concepts I have learned is the need to temper my entrepreneurial zeal with carefully implemented pilots, procedures, and processes. This disciplined approach is particularly important when it comes to providing managed ASP (application service provider) services. A poorly conceived hosting operation can quickly become a cost center and ruin good client relationships to boot.
The reason we call our hosting service a managed ASP is that we provide the infrastructure administration expertise; our clients purchase their own hardware and software. The traditional ASP model of renting equipment to customers might be appropriate for organizations such as GE Capital or Cable & Wireless. It probably doesn't make economic sense for solutions providers who can quickly become caught up in a cash flow squeeze.
Owning the equipment is a dangerous tactic for other reasons as well. It leads to the temptation to share servers across multiple clients, increasing the risk for software conflicts or security breaches. Equipment ownership also exposes the solutions provider to a greater liability should the hardware or software fail or require upgrading.
Co-location Can Be A Profitable Partnership
Rather than trying to host applications on their own premises, solutions providers should consider co-location facilities. Co-location organizations (colos) such as Exodus and Telco have spent millions of dollars building facilities that include generators, fire retardant systems, and redundant communications capabilities. Hosting applications without this level of security, reliability, and scalability is asking for dissatisfied clients and possibly lawsuits.
During the period of ASP mania, many new co-location facilities were built. They want more customers and are often eager to partner with solutions providers in order to get them. Many colos will offer a wholesale price that enables a profit on recurring revenue. A good relationship may prompt them to provide leads to their other customers seeking integration services. One caveat: when acting as a reseller for co-location services, solutions providers should ensure that contracts with their clients exempt them from all liability arising from problems with both the hosting facilities and data lines.
Get It In Writing
Determining the appropriate SLAs (service level agreements) is crucial for managed ASP success. The best scenario is to have prospective clients pay for an up-front analysis of their IT requirements as a precursor to developing a hosting plan. The plan should cover the project scope and future capacity planning, user expectations, escalation and recourse, performance metrics, and performance reviews.
A solutions provider that offers managed ASP services must decide whether or not to include application support as part of the offer. Users tend to have an infinite level of desires, so it is crucial for the solutions provider to limit whatever application support is ultimately offered.
Base Pricing On Predetermined Services
A pure play ASP generally charges for usage either on a monthly basis by user or based upon actual application utilization. Solutions providers, though, are accustomed to charging for their time. This model probably makes the most sense in a managed ASP environment as well. Ensure a minimum revenue stream by charging a base monthly fee for the hosting service and associated management reports. All additional administrative tasks can then be billed as incurred, perhaps at a discounted rate that includes a monthly minimum number of hours.
A managed ASP service is an outsourcing agreement that should only be offered on a case-by-case basis when the fit between organizations is good and a mutual respect is evident. The hosting requirements will change over time, and it is imperative to stay involved with the client's planning process. This will enable a strong partnership between the solutions provider and the client, enabling both organizations to derive continuing benefits.