ASPs Wither, Web-Based Services Endure

The world of banking is a conservative one, not exactly the place you’d look first for innovation.

But Rodric O’Connor, chief technology officer of Putnam Lovell National Bank Financial, an investment bank in San Francisco, is daring. O’Connor’s betting on the Internet, putting his money on 15 companies to host and manage Putnam Lovell’s software.

In 2002, that hardly seems the way to solve the cost and operating challenges of running the information systems of a major bank. But O’Connor hires young, agile Web-service providers to handle the bulk of the bank’s management functions, like dealing with personnel issues or financial reports. The company’s trading system remains safely behind firewalls on private networks, under the company’s control.

So, for instance, workflow-software company BlueMatrix sends out the bank’s research reports to customers electronically. To get that done, BlueMatrix asks another service provider,, for a customer list through middleman Grand Central Communications. A portal provided by Jamcracker lets employees sign on once to all Web applications.

“There is one reason I’m doing this: money,” O’Connor says.

So, while the Internet itself has lost its glamour, judicious use of applications run by companies that provide their services wholly over the Web may be finding favor by companies such as Putnam Lovell. For instance, Putnam Lovell relies on a number of vendors that didn’t even exist four years ago.

That’s when a first wave of Web hosting companies burst onto the market. Calling themselves Application Service Providers (ASPs), they maintained customers’ software on their own computers and rented it back to them.

The idea was that the customers, then primarily dot-coms, would be freed of purchasing and maintaining software and could use their dollars elsewhere, perhaps to bolster their marketing budgets and build their brands. And the rent would provide ASPs with a steady source of income.

But two things went wrong. First, there were few companies that thought renting was a good idea. Most wanted to own an asset as important as software, and they were not about to turn over anything that controls their critical business processes to an outsider. Second, the Internet stock-market crash wiped out most of the customers.

Parts of the original idea survived, however, and are bolstered now by customers willing to give Web-delivered services a try. It’s hard to tell, however, just how many customers there are.