Are We Really Ready for a Web-Based World?

Hosted apps may be less hassle and cost, but are you willing to get quite that virtual?

Liane Gouthro, special to PCWorld.com

You can kiss shrink-wrapped software boxes good-bye--if you believe all the talk from the Application Service Provider (ASP) industry, that is.

ASPs burst onto the scene a few years ago as the purported Next Big Thing enabled by the Web. Companies scrambled to offer software applications in a Web-based, or hosted, model. Leading the way was Sun, already one of Microsoft's biggest competitors in the office suite market.

Sun's vision of the future centers on open-source, free or low-cost applications available over the Web. In 1999, the company announced StarPortal, a Web-based version of its office suite, originally scheduled for release in early 2000.

But 2000 has come and gone, and StarPortal has yet to appear. Where is it, and how does its tardiness reflect on the vision of software as a Web-based service?

"In the future, it's likely that software will be delivered as a service," says Greg Blatnick, vice president at Zona Research. "It's likely that you will connect to your software via a network rather than accessing it from your desktop."

ASPs are drawing more users, say Zona Research, IDC, and Cahners In-Stat Group, which all track the use of ASPs. The selection of ASPs is on the rise as well.

Big Names, Big Benefits?

After Sun made its push for Web-based applications, more companies started jumping on board. Applications from Microsoft Office to enterprise-wide sales automation applications are available in a Web-based version.

And using hosted applications does have its benefits--saving money is one of the top attractions. You don't have to pay the full price of the application: The company, or ASP, that hosts the application on its servers offers it to you on a rental or subscription basis. The applications are typically priced on a per-user per-month basis, meaning you only pay for the application as long as you use it.

Because the application actually runs on the ASP's servers instead of residing on your hard drive or on your company's network, you have fewer maintenance worries. Upgrades are seamless. The ASP acquires and installs the new version, and you simply begin using the update without doing any work to get it. And technical difficulties are not your concern: The ASP handles those, too.

These benefits have boosted ASP usage, all the researchers have found. But usage is not ready to skyrocket, most experts say.

"Adoption is starting, but it's moving slowly," says Amy Mizoras, senior analyst for ASP research at IDC. "In 2000, we predict that worldwide, spending on ASPs will be $600 million. That's up from $300 million in 1999, and while it may seem like a lot of money, it's not."

IDC predicts that by 2004, worldwide spending on ASPs will reach $7.8 billion, but again, says Mizoras, that's not as much money as it would seem. "That's still less than 1 percent of overall IT spending," she says.

User Concerns

With all the benefits, what's holding back ASPs? Even the early adopters acknowledge some concerns. Top among them are skepticism about performance and caution regarding security. Also, it simply takes awhile to become accustomed to Web-based applications.

Performance is an obvious concern for many users. What happens if the ASP's network is down? You may not be able to access your applications when you need them. Ditto for when your own Internet connection is down.

"Nobody offering these applications is willing to offer 100 percent uptime, and it's illogical for the end-user to expect it because at some point, something will go wrong," says Zona's Blatnick.

"As far as downtime, users have to hope those times are limited," he says. "Our research found that users are willing to accept more downtime than I would have expected, a number of days per year."

Security is also a primary concern. Since an ASP hosts the application, it also hosts much of your data. While this means you can get at your files from many different PCs, does it mean someone else can peruse them as well? Most ASPs guarantee security, but some people aren't convinced, especially when their files contain sensitive financial or company information.

Bryan Emerson, the founder and president of Starlight Capital, a small venture capital firm, has been using NetLedger, a Web-based accounting and financial management program, for one year. He admits he still has qualms about security.

"I have no measure of how secure my data is," Emerson says, but adds he is still willing to use the application. The cost and the convenience of accessing the application from any PC with a Web browser have convinced him.

And while not all users are ready for Web-based applications, not all applications are ready for a Web-based world.

Getting Down to Business

Web-based applications are not truly designed for home users. Some companies, such as ThinkFree and Personable.com, offer personal productivity applications for consumers, but most ASPs have a business slant.

It could be that typical consumers applications aren't ready to move to the Web. That office suite you've come to know and love will probably stay housed on your PC for some years to come.

Specific technology challenges are stalling both home and business users. The lack of widespread high-speed Internet access is deterring both homes and businesses. Also, some observers suggest today's applications don't have the right architecture for a Web-based model.

"The applications that exist today are simply not optimized for Web delivery. This limits what types of applications ASPs can offer," says IDC's Mizoras. "Software vendors are rebuilding their applications, but that will take some time."

Does Your Office Belong Online?

Office suites, notably Microsoft Office and Sun's delayed StarPortal, are among the primary applications positioned to reside on the Web. Ironically, however, some analysts watching the ASP market believe those are exactly the wrong kind of application to run online.

Office suites may simply be too frequently used to operate effectively online, Zona's Blatnick suggests. He thinks companies may not be willing to use Web-based versions of the applications they rely on.

"It could be that the applications they are using are not mission-critical," he says.

So, just what types of applications are being used online? Tapping the nature of the Internet to an advantage is key for successful Web-based apps, analysts say. Communications, collaboration, electronic commerce, training, and education applications top Zona's list of the most popular applications used via ASPs.

IDC's Mizoras agrees. Applications that companies already have in-house, such as that trusty office suite, are not as likely to make the move to the Web (despite Microsoft's and Sun's intentions). Companies are more interested in outsourcing new and different applications, such as e-commerce and customer relationship management applications.

"It could be [they're drawing interest] because these are newer applications and the IT department may not be well versed on them," she says. "These applications are also in higher demand, and it's hard to find the talent to run them."

Fear of the Unknown

Unfamiliarity with the players is another reason some people shy away from ASPs.

"There's a lack of brand awareness," says Kneko Burney, director of EBusiness Infrastructure and services with Cahners In-Stat Group. "Most ASPs are fairly unknown, and people are skeptical. Think of it this way: If someone you had never seen before walked up to you on the street and asked you if you wanted to open a bank account, would you give them your money? For some businesses, that's how they feel about ASPs."

Users generally know what applications they want, and they know these applications by brand name. Microsoft Office may be the best example of this. A business or a home user may wish to use Microsoft Office in a hosted version but may not be able to distinguish among the service providers offering the application.

Microsoft's applications are available in hosted versions, but they are not available through Microsoft itself. Instead, the company has 20 service partners that handle those responsibilities, says Lisa Gurry, Microsoft Office product manager. When the product was first announced, Microsoft planned to offer it through its own BCentral Web site, but those plans were scrapped.

"We have found that the audience most interested in using Office as a hosted application today are medium organizations or departments in large organizations, which are not BCentral's target audience," Gurry says.

So people wanting a hosted version of Microsoft Office must turn to one of Microsoft's partners, which may be a company you've never heard of.

CMeRun is one of the service partners offering Microsoft's applications. The company hosts several personal productivity applications for consumers, who access the programs through their own Internet service providers. Paula Hunter, the company's chief operating officer, also serves as the president of the ASP Industry Consortium, an advocacy group spreading the word about the benefits of the ASP model.

Educating, Reassuring

The consortium knows spreading the word is not always easy, so it has an education committee dedicated to the task.

"The lack of brand awareness is a problem, but it's indicative of how new the industry is. That's what our education committee is working on: getting the message out to customers," Hunter says.

And Hunter is convinced the smaller, pure-play ASPs can survive.

"It all comes down to good business references," she says. "It's whether you can demonstrate a strong support infrastructure and show that you can meet your customers' needs."

Learning By Experience

CMeRun learned that lesson first-hand. Before the company could get its ASP business up and running, it had to turn to an ASP itself.

"Start-up companies want to get business applications up and running quickly. At CMeRun, our priority wasn't buying servers and setting up our own internal business applications," Hunter says. The company outsourced its sales automation application, to concentrate instead on running its core business. "It was headache-free to set up, and there were no capital expenses," she adds.

This experience is not unusual. Zona's research has shown that many users turn to ASPs for the same reasons. Zona also expects more companies will find hosted applications a viable solution in the future.

"Overall, satisfaction with ASPs seems to be high," Blatnick says. "In general, most companies we surveyed expect to expand the number of ASP users, as well as the number of applications in use." So these may be the early days for ASPs, but they're striving to provide increasing reasons for us to find answers online.