IBM Global Services is sure to want to take a stake in the emerging application hosting market, but in common with many other emerging ASPs (application service providers) it’s looking unsure of how best to go about building itself a suitable strategy. Each of its geographical regions has put in place application hosting services that […]
IBM Global Services is sure to want to take a stake in the emerging application hosting market, but in common with many other emerging ASPs (application service providers) it’s looking unsure of how best to go about building itself a suitable strategy. Each of its geographical regions has put in place application hosting services that vary slightly, presumably so it can trial slightly different market approaches.
In Northern Europe, IBM Global Services says users of its new application hosting services, that promises to deliver ERP applications from J D Edwards, SAP or PeopleSoft to the mid-cap market, would also be able to bolt-on customer relationship management and e-commerce packages. The offer is the latest in a line of me-too bids from major players such as HP, SAP and Oracle as they attempt to understand the dynamics of this already much hyped emerging market.
Gartner Group says the European market for ASP services currently stands at around $180m and that in the UK, the ERP outsourcing market will grow with a compound annual growth rate of over 42%. That puts it on course to touch $1bn by 2002.
The problem vendors face is deciding what level of service to deliver. Is there a demand for a full service that includes a pre-implementation consulting service? Do customers want a more simplified, less made-to-order approach? There’s also the need to find a way of delivering fully integrated enterprise application software – an e-commerce package linked to a selection of ERP modules, say. Since it is difficult enough to integrate these systems without the added burden of delivering them remotely, industry analysts are asking whether or not this is a realistic proposition. IBM seems to think it is a viable proposition. It says it’s working in tandem with an unnamed enterprise application integration (EAI) vendor that claims to have cracked the conundrum and is talking about the prospect of ‘utility IT services’ delivered down the wire.
The package that was launched last week in IBM’s Northern Europe region is a ‘full-service’ offering that takes in everything from help-desk, training, hardware, software, network service, service delivery and consulting. Initially the service will support financial, human resources and manufacturing business applications. In the field, Colin Smith of IBM reckons the new service from IBM Global Services Northern Europe could be rolled out within 13 weeks – including consulting time. IBM will manage the software license from the ERP vendor so that the client has only one contract between itself and IBM to worry about.
The supposed benefit of the ASP subscription-based service model is reduced cost. Smith reckons that for a 400-seat operation customers may be charged a monthly fee of between $275 and $300 a head. In the first year this may represent a cash flow advantage of $1.85m, Smith said. To put this in perspective, a mid-cap business with about $500m in annual revenue might spend 2% of revenues, or $10m, installing ERP. One potential draw back is a client will never own its ERP system and could be paying monthly fees for five or more years.
Another potential downside is that the IBM service offers only ‘standardized’ versions of SAP. Nick Nickerson, IBM executive for ERP services in Northern Europe, states that clients will be able to customize the system by no more than 20%. This may not appeal to businesses looking to gain, or indeed hold on to, competitive advantage through unique business processes.
Investment analysts at First Albany adds another cautionary note that leasing has not been popular with the mid-market in the past. That said ‘new-age’ applications such as non-production procurement software or expense management which require fewer touch points to legacy systems would not require extensive customization. There may well be a demand in this area, First Albany suggests.