It didn’t seem like such a risky move at the time for Michael Osborn, the
vice-president for sales and technology at eVineyards.com,
an online wine shop. Two years ago, he hired Pandesic, a joint venture of tech
giants Intel and SAP, to run his company’s e-commerce systems. He was
"sure SAP and Intel would never let it go under."
Survival Tools
Here’s how to avoid trouble when you
buy software delivered over the Net by an application service provider.
Do a background check
An ASP dishes up software that is vital to your business, so make sure the
company has a track record for reliability. Does it have enough financial
backing to stay in business? If your ASP goes under, it could take your
company data with it.
Get a service guarantee
A high-quality ASP offers contracts, guaranteeing speed and reliability of
service. Customers usually pay more for this, but it may be worth it. In
some cases, the ASP will refund payments if it fails to meet obligations.
Plan for a disaster
Prepare for the worst. That means lining up an alternative ASP. Consider
putting something in your contract requiring the ASP to transfer your
company data to another service provider if it runs into trouble.
Get insurance
Yes, there is such a thing. In 2000, insurers such as Lloyd’s of London
began offering policies to deal with ASP issues like lost data and
computer viruses. Ask your ASP if it offers insurance. If not, get a
policy from another source.
Bad bet. They did exactly that. Frustrated by their inability to make money
off the service for small- to medium-size companies, the two announced Pandesic’s
demise last July. They didn’t abandon customers overnight, instead giving them
five months to find a new supplier. "We could have just shut it down. But
we didn’t do that," says Eric Rubino, chief operating officer of SAP
America. Still, it irks Osborn. "Was it the best time to do it, right
before the holidays?" asks Osborn.
"I don’t think so."
Only a few Web-site managers have had to live through an application service
provider meltdown, but Osborn is expected to have plenty of company before too
long. Market researchers expect up to 60% of the 500 or so ASPs to fail within
the next year. If your ASP goes out of business, you could face a nightmare of
expenses, lost data, and, potentially, days without crucial computing systems.
If you haven’t signed up yet, think hard about whether it’s a good idea.
If you decide to go ahead, protect yourself. For starters, pick a company that’s
well funded and headed toward profitability. It’s probably safest to go with
an ASP that’s already public, since you can see their balance sheet. Get a
guarantee of service in writing—and make sure the ASP is on the hook to pay a
penalty if they’re not up to snuff. As the ultimate fallback, have a strategy
in place, including financial insurance, should an ASP tank. "We’re
working with our IT department...to back us up if there are any problems,"
says Carey Eisenhower, Internet marketing manager of Hershey Direct, which buys
services from Usinternetworking.
The warnings came too late for eVineyards.com’s Osborn. He ended up OK,
moving over to Intel Online Service Group. Unlike Pandesic, Intel’s customers
buy their own software, which Intel hosts for them at its data centers. It’s a
proven strategy. SAP claims to have learned from the Pandesic flop, too. Let’s
hope so. Last month, it started its own ASP.
By Jim Kerstetter in California in BusinessWeek. Copyright 2001 by The McGraw-Hill Companies, Inc
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