By Deborah Gage Print this article Print

The days of the application service provider may have come and gone. But standardized services on the Web are gaining customers, who want low-cost means of handling systems like customer relations. Should your company be next?

's Using Web Services?">

Who's Using Web Services?

Summit Strategies, an industry analyst firm, has no estimate of how many companies are participating now. "I've been tracking this market for four years, and still almost weekly I see something I didn't know about," says Vice President Laurie McCabe.

Salesforce.com, which now claims to serve 5,000 customers, has been at the forefront of this wave, providing customer-relationship management not as software, but as a monthly service. Small, free upgrades are made as often as every few weeks.

Because these vendors do not have to write software for multiple platforms—Sun, IBM, HP, Microsoft, etc.—their development costs are lower, and they pass those savings on to customers. Vendors also take responsibility for maintenance, support and security, charging customers a single subscription fee.

ASPs, by contrast, host applications on their own equipment. As such, they have to retrofit software originally designed to be run by each customer to work on that equipment. So managing, upgrading and supporting the software takes more time and is more expensive. ASPs do offer somewhat more flexibility to customers than an Internet service such as Salesforce.com, because the customer can get some customized code. But it costs.

O'Connor's strategy is possible because of emerging Internet standards, which are now solid enough to support the development of software that behaves in new ways.

IBM's Director of e-Business Standards, Robert Sutor, believes the industry is halfway through a five-year battle to establish the plumbing for Web services. Just as the post office allows people to exchange letters, Sutor says, so Web services infrastructure allows applications to exchange data over the network. Ultimately, applications should be able to conduct complex transactions, although essential pieces like security are still being defined.

O'Connor is generous about publicizing Putnam Lovell's work, and in return he tries out new features and gets lower prices consistent with his risk. He has contingency plans for each vendor, and is careful to protect Putnam Lovell's data. For example, sales contacts are synchronized into an Exchange public folder, which ensures that the data will be available should the Internet or a vendor go down.

There are trade-offs for avoiding the bugs and costs associated with big enterprise software packages. Salesforce.com, for example, provides 80% of the features of a big customer-relationship management package at 20% of the cost. After surveying employees, O'Connor decided Putnam Lovell could do without the missing features—and the big up-front costs of installing a conventional CRM package on his company's own hardware.

Two of his vendors, Resource Phoenix and First VPN, went out of business. But they did give O'Connor six weeks' notice, enough time to transfer the bank to other providers without the software going down. O'Connor knows the chief financial officers of all his vendors, and he calls them regularly.

"I ask them their cash-burn rate, what cash is in the bank, how long is their runway before they have problems," O'Connor says. "Normally a company does know, and you want them to tell you. It's not the most comforting environment to operate in, but it's manageable."

This article was originally published on 2002-10-11
Senior Writer
Based in Silicon Valley, Debbie was a founding member of Ziff Davis Media's Sm@rt Partner, where she developed investigative projects and wrote a column on start-ups. She has covered the high-tech industry since 1994 and has also worked for Minnesota Public Radio, covering state politics. She has written freelance op-ed pieces on public education for the San Jose Mercury News, and has also won several national awards for her work co-producing a documentary. She has a B.A. from Minnesota State University.

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