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By Eric Wilson

APPLICATION service providers are coming out of the woodwork in Australia, hoping to make a big impact by halving the costs of traditional IT. The idea is to rent your business applications and run them on outsourced computers, thereby amortising the cost of hardware, software and installation over many companies, rather than having each one go through its own IT pain individually. "Many companies have what I call technology indigestion," said Clare Gillian, IDC's vice-president of applications research. "So many of them are just not upgrading their software - they're aborting the process. But with Y2K they can't afford to do that."

Gillian believes millennium-bug and upgrade-treadmill weariness will propel the ASP model forward, as quick ASP fixes become the order of the day for companies running late with their Y2K fixes.

ASP's have also been touted as "IT Angels", quickly providing best-practice IT services when many businesses suffer millennium IT meltdowns. And as ASPs gain popularity they promise to add value, offering customers business-to-business e-commerce, made easy because all systems are on a common platform under one roof.

But looking beyond the hype, the ASP model raises some serious issues which won't go away. What if your ASP goes broke? How easy will it be to immediately switch over to another? Once an ASP has your applications and your data, what's stopping them from then charging what they like for extra services? How secure will your data be? Will it be backed up and who will have access to it? Is IT for strategic advantage possible when your ASP wants to share everything with their other clients?

"Clearly there's a need for not only industry guidelines but also for third parties to be certifying and accrediting ASPs," said Traver Gruen-Kennedy, president of the ASP Industries Consortium, a new group representing the industry. "The big five accounting firms and standards organisations could do this. Certainly it won't benefit anyone for ASPs to hold their customers hostage."

However, one industry source, an enterprise resource planning expert at one of Gruen-Kennedy's "big five" accounting firms, said this is unlikely to happen soon. "Why should we?" he asked. "The work involved isn't easy and the legal implications if something goes wrong with an ASP certified by us could be enormous."

When pressed, Gruen-Kennedy also said he didn't think the consortium should become an industry watchdog.

"Based on current interests of our members," he said, "our role is to provide guidelines, not be the ASP police."

Although no-one is yet willing to vouch for the new ASPs, things aren't as bad as they appear. In fact, when it comes to security, moving their IT function to an ASP may actually be a step up for many businesses.

Getting third-party verified guarantees may be difficult, but industry insiders say 90 per cent of companies don't have a valid disaster recovery plan anyway. For example, relatively few have a "hot site" ready to take over their IT function at a moment's notice, should flood or fire occur, as an ASP must have to keep up a service-level agreement. Australian ASP veteran Mincom, with offices in 26 countries and two data centres in Brisbane plus one in Denver, views the problem from a different perspective.

"We've been in end-to-end business delivery for 20 years," said Bill Hodgson, executive vice-president in information technical services. "We provide end-to-end services for the mining, transport and utilities industries. Service-level agreements are our product."

Hodgson takes his service-level agreement product mentality very seriously. He said that offering twice their price in reparations should something go wrong is quite common.

Meanwhile, a swag of new entrants is pushing ahead with cheap rental applications for companies needing to expand their IT function quickly, cheaply and effectively.

Last month accounting software company Solution 6 announced the launch of their ASP services, based on SAP and IBM/Lotus technology. This month Progress Software, a provider of Web, Java and database infrastructures, will debut East Coast Property Software, their second Australian ASP customer utilising their underlying ASP technology. East Coast will trial renting out special versions of their property management applications, handling everything from retail store construction to leasing.

"Now you can buy it by the drink as required," said Tony Richardson, Progress Software's Australian national marketing manager. "This gives smaller players access to the functionality only the larger players currently have."

Star Systems was the first Australian Progress powered ASP, providing public Web interfaces to the back-end share trading systems owned by Australian and overseas stockbrokers.

The outsourced service provides stockbroker clients with real-time "market depth" information, such as direct access to their portfolio of investments and trading information about who is buying and who is selling.

Melbourne-based Multi-media Asia Pacific is also about to enter the ASP fray, with their own product as well as selling the services of a US-based ASP.

"We're agents for Ten North, offering a sales channel communications system called InPhase," said Andrea Cartwright, Multimedia Asia Pacific's group product manager. "It's an outsourced collaboration tool for those in distributed environments, which adheres to a rental model."

Based on a system originally developed for the US Navy, InPhase is a secure Web-based application, running on server computers in the US, but rented to users here through Multimedia Australia for $40 a month. According to Cartwright, Multimedia Asia Pacific will launch the service here within two months.

The company also has its own rental application called IntraZone, slated for release this month. This is a sales force automation tool, also encompassing project and client management, with both group calendaring and human resource components. Pricing for IntraZone has not yet been announced.

Overseas, particularly in the United Kingdom, the ASP business is booming. Currently 150,000 people are using applications hosted by British Telecom (BT), including more than 40 schools.

"The ASP model is a rental model," said James Birch, from BT Worldwide. "It's off balance sheet, part of their operational costs, rather than a huge investment. One of the things the teachers like about it is the ASP can control the applications, providing a Net-nanny service at a central location."

Like Solution 6 in Australia, BT is using SAP R/3 in its engine room, powering its Finance Manager, Payroll Manager and People Manager outsourced solutions. They also offer a "Service Surround" such as back-up and help-desk support. And like Solution 6, BT uses templated versions of SAP which can be up and running in six to seven weeks.

The travels of companies like BT lead Solution 6 officials to make bullish predictions about the future of ASPs in Australia.

"This model looks a little bit like an ISP model in its acceptance," said Kent Duston, general manager of Solution 6 ASP services. "Explosive growth is just around the corner."