September 1999

Edition 1.0

ASP CASE STUDIES

Interliant: ASP fusion for the enterprise

From the publisher of

ASPnews.com and
ASP News Review

Farleit Limited

Contents

ANATOMY OF AN ASP: THE NEW COMPUTING GENUS

ABOUT THE AUTHOR

Phil Wainewright, managing editor of ASP News Review, is a leading analyst and global
authority on the application services industry. He has tracked the sector full-time since
autumn 1998, when he established the ASPnews.com web site as the primary source of
news and analysis of the emerging ASP industry, and launched the ASP News Review
newsletter. He is a regular speaker at major ASP conferences in the USA and worldwide,
and since 1994 has written regularly for leading US Internet and European IT publications,
specialising in enterprise computing and the impact of the Internet. He previously spent
almost a decade in marketing and product management in a variety of roles in the UK
computer industry.

ABOUT THE PUBLISHER

Farleit Limited is an Internet-based publishing venture which aims to combine traditional
information publishing values with the best of the opportunities offered by Internet
technologies and the World Wide Web. Founded in 1998, Farleit operates ASPnews.com,
the online source of global news and analysis for the ASP industry, and publishes the ASP
News Review newsletter and other titles on ASP issues.
This report published 1999 by
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ASP News Review

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Farleit Limited 1999. All rights reserved.

ABOUT LICENSING
The publisher has granted full joint exclusive rights to Interliant Inc of Purchase NY, USA, to
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ASP CASE STUDY: INTERLIANT

Contents

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Contents
INTRODUCTION............................................................................................................................... 4
CREATING ASP FUSION ................................................................................................................. 5
ASP MARKET TRENDS .......................................................................................................................... 5
Acceptance of outsourcing............................................................................................................................ 5
Need for speed............................................................................................................................................. 6
Commerce gets wired................................................................................................................................... 6

ASP TECHNOLOGY TRENDS .................................................................................................................. 7

Universal IP networking ................................................................................................................................ 7
Development of server-based computing ...................................................................................................... 7
Distributed systems management ................................................................................................................. 7

THE EMERGING ASP SPECTRUM ............................................................................................................ 8

Webtop applications ..................................................................................................................................... 8
Subscription outsourcing............................................................................................................................... 8
Application server hosting ............................................................................................................................. 8
ASP aggregators .......................................................................................................................................... 9

INTERLIANT AT THE ASP FRONTIER ........................................................................................................ 9

Current offerings......................................................................................................................................... 10
Future directions......................................................................................................................................... 11

AN ASP MENU FOR THE ENTERPRISE........................................................................................ 12

ASP CONVENIENCE............................................................................................................................ 12
Economies of skill ....................................................................................................................................... 12
Budget friendly ........................................................................................................................................... 13
A flexible friend ........................................................................................................................................... 13
Network ready ............................................................................................................................................ 14

ASP-READY BUSINESS ENVIRONMENTS................................................................................................. 14

ASP APPLICATIONS FOR THE ENTERPRISE ............................................................................................ 15
E-commerce............................................................................................................................................... 15
Customer relationship management (CRM) ................................................................................................. 16
Enterprise resource planning (ERP) and accounting.................................................................................... 17
Messaging and collaboration....................................................................................................................... 17
Distance learning ........................................................................................................................................ 18
Instant applications ..................................................................................................................................... 18
Vertical market applications......................................................................................................................... 19

EVALUATING THE PROVIDER ................................................................................................................ 19

Fitness for purpose..................................................................................................................................... 19
Subscriber management infrastructure........................................................................................................ 19
Technology infrastructure ........................................................................................................................... 20
Support infrastructure ................................................................................................................................. 21

ASP DELIVERY CHANNELS................................................................................................................... 21

APPLICATION SERVICES STRATEGIES .................................................................................................... 22

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ASP CASE STUDY: INTERLIANT

Introduction

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Introduction
The second in our occasional series of reports highlighting individual application service
providers turns the spotlight on one of the industry's earliest successful pioneers at an
important juncture in its development.
In previous reports, we have described how the ASP model - in which a provider delivers
pay-as-you-go applications and automated services from an online data centre - has
developed from three separate strands of computing. It is rare, however, to find any ASPs
where all three of those threads co-exist.
Interliant Inc, the subject of this report, is a notable exception, with roots both as an IT
service provider and as a web hosting provider, and with early experience of operating an
Internet application portal. We believe its evolution of those three separate threads into an
integrated online application service offering provides valuable pointers to the likely
development of the ASP industry as a whole. This short report puts that evolution into
context and, using Interliant as a case study describes some of the implications in terms of
customer choice and ASP industry practice.
As the publisher of ASP News Review and the ASPnews.com website, Farleit Limited
tracks ASPs all over the globe. This series of occasional reports focuses on specific,
individual examples one at a time. We do not expect to issue more than four or five of
these ASP case studies in any given year, choosing our subjects carefully to highlight
different aspects of ASP methodology, technology and business models.
Once each report has been completed, we will often, as in this case, grant a publishing
licence to the provider concerned. Obtaining a commercial income in this way helps to fund
the resources required to prepare these reports, and enables us to make them available
free of charge to visitors on our own web site. We always make it clear from the outset to
the subject that we will maintain an independent editorial stance. Publishing licence
partners have no editorial control and understand that, in the event that they disagree with
our conclusions, their only recourse is to decline to purchase the licence.
We hope you enjoy this report from the publisher of ASP News Review.

London UK, September 1999

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ASP CASE STUDY: INTERLIANT

Creating ASP fusion

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Creating ASP fusion

A convergence of technology and business trends has brought a new means of acquiring
computing within the reach of enterprises today. The past year has seen the emergence of
a new breed of business computing provider, the application service provider (ASP). This
next-generation information technology services company delivers computing to customers
from a network-based data centre. Enterprises no longer have to own or operate the
hardware and software on which their business computing runs. Instead they pay a fee to
the ASP according to usage, typically on a monthly subscription basis.
Little more than a year after it first came to light, this rapidly-growing IT delivery channel is
already entering a new phase of development. This chapter reviews some of the market
and technology trends that have brought us to this point, and describes how the spectrum
of ASP choice is evolving as various lines of development converge. We conclude with a
brief account of how Interliant in particular has brought about a fusion of separate traditions
in its own recent history to offer an integrated set of ASP choices, foreshadowing
developments that we expect to see in the wider market. The following chapter describes
the potential impact of application service provision on enterprise IT strategy, and provides
an assessment of the principal choices ASPs are making available to enterprises,
Interliant's ASP offering as an illustration.

ASP MARKET TRENDS

Several separate market trends have fostered the emergence of online application services
as a viable option in mainstream enterprise computing.
Acceptance of outsourcing
The concept of outsourcing is increasingly accepted in business today. Management gurus
and investors alike emphasise the merits of concentrating on core competence, and of
bringing in outside specialists to perform all non-essential functions.
Within the IT landscape, evolution in technology has enabled outsourcing to become much
more selective. Many businesses now outsource specific elements of their total IT
infrastructure to an outside service provider, including the provision and operation of the
data network, the monitoring of service levels experienced by users, and increasingly the
provision of specific applications themselves.
The spectrum of application services now available as a managed service ranges from
simple website design packages, passing through hosted email and messaging, right up to
high-end enterprise resource planning (ERP) applications. This new wave of outsourced
application services is typically priced on a per-user, per-month subscription basis.
Such developments have been encouraged by an increasing trend among IT departments
to view themselves as internal service organisations, tasked with understanding key
business issues and finding solutions to them. Outsourcing allows such groups to
concentrate on delivering strategic business value, leaving everyday operational issues in
the capable hands of an external provider. For smaller enterprises, the issue is a lack of
knowledge and resources to deploy and operate the new technologies they need to retain
their competitiveness. Outside providers can bridge that gap between the possibilities
business owners perceive and the practical inaccessibility of today's business applications.
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Need for speed

The fast-moving pace of both business and technology today puts increasing pressure on
scarce skills and resources. Applications are growing more complex, the business
environment is more competitive, skilled staff become more difficult to train and retain,
while costs continue to be under tight control.
The IT industry's response to these factors has been to increase the extent to which it
packages its products ready for use. Even high-end enterprise applications are now
packaged and delivered with templates that provide an immediate starting point for
implementation. The race is on to slash implementation timescales.
Application service providers aim to devise methodologies and templates that short-cut
implementation even further, down to weeks and days. This process drives applications
towards an off-the-shelf, easy-configuration state that lends itself to online delivery as an
Internet-based service.
Commerce gets wired
Businesses today fully accept the need to 'get wired'. The prevalence of e-commerce and
e-business capabilities within enterprises, already well established in North America, is now
spreading into Europe and the Asia Pacific region.
This is not just about companies having a website from which they present static
information or passively sell to consumers. Web servers have become dynamic, reacting to
user input and providing an increasingly personalised experience, and in the process they
have proven their ability to host a wide range of sophisticated applications.
As a result, today many aspects of enterprise computing are moving to an Internet-centric
model.

Electronic commerce
Electronic trading and communication with suppliers and customers up and down the
value chain is allowing businesses to realise huge economies and efficiency gains in
applications such as electronic procurement, customer relationship management and
supply chain collaboration.

Enterprise portals
Business applications are moving towards an enterprise portal concept, in which the
user has access to relevant information feeds and other services as subsidiary
applications running in a browser window alongside the core product.

Intranets
The company intranet is becoming the default platform for delivering enterprise
computing. Many organisations are moving their entire computing infrastructure onto an
intranet architecture, using Internet technologies to distribute applications and
information within the enterprise.

Extranets
Similarly, the move towards giving customers, partners and suppliers access to
company applications via a browser interface is making web-based delivery a growing
feature of external communications. In this context, larger enterprises are themselves
becoming application service providers to their suppliers and customers.

Many businesses rely on outside providers to operate the infrastructure for these new
computing architectures. Internet service providers and web server hosting providers who
started out hosting static Web servers have grown in expertise and scale as their
customers' needs expanded. They are often better equipped than their customers to
handle the delivery of applications across a wide area network as a 7x24 operation.
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Creating ASP fusion

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ASP TECHNOLOGY TRENDS

Various emerging technologies over the past two to three years have combined to make
application services a cost-effective and accessible option today.
Universal IP networking
The advent of the Internet has demonstrated the viability of a simple, open, platformindependent network protocol that delivers both content and applications to users cheaply
and easily. The Internet's underlying Internet protocol (IP) is becoming the default standard
architecture for all forms of telecommunications. Meanwhile, the laying of high-capacity
fibre optic networks throughout the developed world has created an oversupply of
bandwidth that telecom providers are eager to fill. These two trends together have
converged to create an all-purpose, global telecoms infrastructure based on IP technology,
for which the cost of access is falling steeply.
The benefits of IP are not limited to cost and availability. Developers have had many years
to create additional services to sit on top of the IP infrastructure, with the result that
functions such as security, user profiling and network management are now highly
advanced. Security is a particularly important consideration when users are accessing
applications and data across the open Internet. Technologies such as the secure socket
layer (SSL) in the web browser, public key infrastructure (PKI) to authenticate users and
virtual private networks (VPNs) to secure transmissions, each provide varying levels of
security to meet stringent user requirements. These technologies are now reliable, proven
and affordable.
Development of server-based computing
Cheaper, more plentiful telecommunications have in turn encouraged the development of
server-based computing architectures, which are designed for environments where client
computers access centralised servers across a telecommunications link. In a server-based
computing architecture, most of the data storage and application processing takes place on
the central servers, while the client computers are mainly concerned with accepting
instructions from the user and displaying the results. A welcome side-effect of server-based
computing architectures it that they tend to be easier to manage and less wasteful of
resources than PC-centric client-server approaches.
The most widespread example of server-based computing is the worldwide web itself, in
which central servers hold all the content and applications, while clients access them using
a web browser. Various technologies have been evolved to run applications centrally on the
server including not only CGI, Perl and Java, but also Microsoft's Windows DNA
(Distributed interNetwork Architecture) and a wide range of application server platforms.
Another variation on server-based computing is Windows terminal technology. This allows
Windows applications to run on a centralised server, sending just the user interface across
the network either to a dedicated Windows terminal or to a general-purpose web browser.
Distributed systems management
Easier connectivity has revolutionised systems management, enabling computer systems to
be monitored, managed and even repaired across a phone line. This has been a major
contributor to the emergence of selective outsourcing, enabling reliable remote
management from a centralised enterprise operations centre. Using today's application
management solutions, it is now possible to track the application performance actually
being experienced by a user from the opposite side of the globe, and to drill down and

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examine the performance of any of the individual routers, servers or applications that affect
the overall experience perceived by the user.

THE EMERGING ASP SPECTRUM

These market and technology trends have combined to enable the application service
providers we see coming to market today. They offer a broad spectrum of solutions,
operating models and delivery choices.
Webtop applications
The largest volume of applications delivered online today have been developed from the
ground up as Internet-based offerings and are provided either free or at a very low
subscription cost. Examples include email and collaborative apps, file and document
storage, web and e-commerce site builders, simple desktop productivity tools, and others
tailored to meet more specialist needs. Often, users can sign up online using a credit card
or other electronic payment method and begin using them straightaway.
Software-based online business services are another important category. Using Internet
computing, these dot-com operations cost-effectively offer a volume customer base
anything from electronic purchasing to specialist professional services.
At present, there are very few examples of core enterprise applications being offered in this
model. This is because established software products have to be re-engineered for Internet
delivery, while startup brands are still building up their offerings. Furthermore, customers
expect a significant degree of individual configuration of enterprise apps. The result is that
ASPs must spend time preparing them for delivery, imposing an upfront cost that has to be
either paid in advance or recovered over an extended contract period.
Subscription outsourcing
The model for the provision of high-end application services takes existing enterprise
software products and offers them as outsourced applications on a subscription basis. The
ASP tailors an application to the customer's requirements, purchases the necessary
software and hardware, and the customer signs a three- or five-year contract to receive the
application as a managed service. ASPs have established relationships with lease finance
providers who amortise the upfront implementation and purchase costs across the life of
the contract.
In this way, established enterprise-class applications from top-tier vendors such as SAP,
Peoplesoft, JD Edwards and others can be offered for a fixed per-user, per-month
subscription payment basis across the life of the contract, avoiding the high upfront
commitment required for a conventional purchase. Setting the payment as a per-user figure
has the extra benefit of relating the monthly sum to actual consumption in a transparent
and predictable manner.
Application server hosting
As web sites have become more and more sophisticated, what started out as the provision
of web and mail servers to business customers has ended up as a highly sophisticated
managed infrastructure offering. In the process, web hosting providers have turned into
application service providers.
In the enterprise market, hosting providers have been drawn into providing increasingly
complex intranet, extranet and Internet servers for their customers, often taking care of the
provision, implementation and management of the server rather than simply providing data
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centre space. A number have extended the principle to other networked applications such
as Exchange and Notes email and messaging systems. Today, such providers are
responsible for complex, mission-critical e-commerce and e-business applications on behalf
of their customers.
Other providers have preferred to evolve their web hosting services to concentrate on
managing server farms for dot-com enterprises and other application service providers,
turning into ASP infrastructure providers (AIPs). In the always-connected online world of the
Internet economy, partnership is becoming increasingly important, and few ASP offerings
are the product of a single entity that owns every element of the solution. In many cases,
separate providers take care of implementation, application management, subscriber
management, server hosting and connectivity - but each works closely with the others to
ensure the customer experiences a seamless, reliable service.
ASP aggregators
As more and more applications become available as online services, a new type of ASP is
beginning to emerge, one that integrates multiple applications into a coherent, aggregated
offering. High-end ASPs are starting to build up portfolios of complementary enterprise
applications, while at the entry-level, online portals are gathering together collections of
applications and business services to meet a particular market need. Even some banks and
telecom companies are becoming ASP aggregators to offer services to their small business
customers.
In some cases, end users will want to be their own aggregators. But a majority will prefer to
leave the integration headaches to specialists, taking to heart the ASP message which
promises to relieve them of the need to develop in-depth technology skills.

INTERLIANT AT THE ASP FRONTIER

Interliant's twin-track history has brought about a unique blend of ASP expertise within the
company.
One half of its dual pedigree stems from leading US web hosting provider Sage Networks,
which acquired the original Interliant company in March 1999, and adopted its name. Sage
Networks, founded in late 1997, grew rapidly from its inception through the acquisition of a
series of web hosting companies scattered across the United States. In the process it
amassed a substantial catalogue of expertise in website, e-commerce and intranet hosting.
The second strand stretches back to 1993, and represents probably the most extensive
continuous record of application hosting by any ASP in the industry today.

In 1993, Interliant began developing a Notes system that would act as a messaging
gateway, hosting infrastructure and online community for Notes users and developers.

In January 1994, the system went live with almost 80 separate companies, all using the
same shared Notes server - the first such deployment of Notes.

During 1993 to 1996, Interliant built up a substantial business hosting private Notes
'extranets' for large enterprises such as Compaq Computer. It also began hosting
applications developed by Lotus Domino partners.

In 1996, it began work on an add-on package for Domino that would support online
rental of hosted applications.

In January 1997, the company adopted the Interliant name and introduced ASP-style
pricing models for its Notes hosting and email services, quoting a flat fee per user.

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In June 1997, Lotus launched Instant!TEAMROOM, a browser-accessed, hosted

collaborative application, and Interliant became the first provider to offer it. At the same
time, Lotus announced that it was working with Interliant to co-develop Instant!Host,
following on from the work on supporting rented Domino applications that Interliant had
started the previous year.

In January 1998, Instant!Host was released to developers.

In September 1998, AppsOnline.com went live, offering a selection of Domino-based

applications for online rental, including Instant!TEAMROOM, now in a new version that
used Instant!Host for subscriber management. A number of other Lotus partners,
including Telia of Sweden and Bell Emergis of Canada, began offering
Instant!TEAMROOM as an online rentable application, also using Instant!Host to
manage subscriber accounts.

In January 1999, Interliant began introducing other application server platforms besides
Domino into the AppsOnline.com environment.

The chronology demonstrates five years' experience of Notes/Domino hosting, a leading

role as an instigator and pioneer of work to make the platform shareable between multiple
client companies, and more than three years grappling with the complex issues involved in
offering applications for online rental over the Internet. Interliant has built up a formidable
depth of experience in application service provision.
Current offerings
Having completed its merger and then listed on the NASDAQ stock market in the first half
of the year, Interliant enters the final quarter of 1999 with a well-defined ASP strategy ready
for execution. It has invested significantly in evaluating and preparing new application
offerings from a broad range of vendors who work closely with ASPs. As well as its
traditional Lotus Domino hosting platform, it is now adding Microsoft Windows DNA,
Oracle8i and Unix platforms. Meanwhile, it has brought significant new data centre and
network capacity online, with advanced application hosting data centres now operational in
Atlanta, Georgia, Houston, Texas, Washington DC, and another coming online shortly in
the UK. All have high-bandwidth OC3 and DS3 connectivity to tier one backbones and are
positioned to collectively provide excellent coverage of both Europe and North America.
Interliant's ASP solutions fall into two principal categories, as described below.
Packaged enterprise applications

This is a range of customisable, subscription-based outsourcing solutions targeting medium

to large enterprise customers. Initially, Interliant will offer applications focussing on four
distinct areas - e-commerce, customer relationship management (CRM), distance learning,
and messaging and collaboration. Over time, its aim is to build up a portfolio of branded,
Internet-enabled applications to cover a complete range of enterprise needs.
A fixed per-user, per-month fee will cover all implementation, consulting, licensing, support
and operational costs, delivered in accordance with predefined service level agreements.
Prices will range from $100 per user per month (prices quoted are in US dollars).
The provider will work with systems integrators, software vendors and their reseller partners
to reach a broad market penetration, and aims to establish a formal channel programme for
its application services, with joint marketing and sales programmes in place.
Self-service web applications

The establishment of a distinct line of enterprise application services leaves

AppsOnline.com free to concentrate solely on rentable web-based applications. It will now

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act as an online source of application services that users can sign up for and use instantly.
The aim is to make the applications as self-service as possible, with support for on-line
credit card purchase, end-user training and other automated, instant-access features.
The target market will be small to medium sized businesses, with a focus on specialist or
vertical markets such as accounting, legal, engineering, freelance professional services
and the technology industry. The intention is to provide a mixture of resources that help
manage every aspect of a small business, eliminating the need to install and maintain
complex in-house IT systems. Ranging in price from $15 to $50 per user per month, the
online offerings will provide a mixture of applications, business services and online
information resources designed to meet the needs of the target market.
A selection of new applications are waiting to be unveiled at the time of writing, including
Lotus QuickPlace, the long-awaited replacement for Instant!TEAMROOM.
Future directions
Few ASPs have been marketing online business application services for as long as
Interliant. It is unique in combining over five years' experience of providing managed
hosting services for enterprise messaging and server-based applications, as well as having
an extensive background as a web hosting provider. It should not therefore be surprising to
find it pushing ahead into new frontiers of application service provision.
The range of services and ASP delivery models that it has at its disposal gives it an
unrivalled opportunity to pioneer the way forward for the emerging class of ASP
aggregators. Most of its peers offer either high-end enterprise applications or entry-level
Web-based self-service apps. Interliant is several steps ahead of the game in offering both
at the same time from a single source.
To realise the opportunity, the company must avoid falling into the error of believing that
AppsOnline.com is its offering for micro-businesses and small enterprises, while larger
businesses are served by its high-end enterprise application outsourcing. Instead, it must
view the two as part of a single integrated portfolio, giving its customers the opportunity to
access any combination of application services according to changing requirements,
without the need to establish additional relationships with new providers.
High-end application outsourcing customers will always have instant access to low-end offthe-shelf services from AppsOnline.com. Meanwhile, the exposure that AppsOnline.com
receives on the web will be an excellent business development tool for the company,
bringing in a constant stream of new customers who could become candidates for more
sophisticated enterprise applications. As well as building relationships with smaller
companies who may in time grow to need enterprise-class ASP services, AppsOnline.com
will allow Interliant to show off its ASP offering to larger businesses that rent point solutions
from the portal.
Interliant should also consciously link AppsOnline.com into its customer service and support
infrastructure, using the self-service configuration, payment, training and support
capabilities that it develops for the site to bring greater efficiency and convenience to its
enterprise ASP procedures. Later, it may prove possible to create links in the other
direction, for instance adding hotline support options to the online rental offering using
Web-based telephony and collaboration tools to put users in touch with live support agents.
Behind the scenes, it should work to develop integration between the various applications
on offer, implementing common data structures where possible and ensuring that users can
easily transfer company data, user profiles and business policies from one app to another
without having to re-enter information. This will increase the convenience for customers of
adding extra applications to their configuration, at the same time as cementing the
relationship with the provider.
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An ASP menu for the enterprise

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An ASP menu for the enterprise

Enterprises today must add online application services to the list of options they examine
when considering the acquisition of additional, new or replacement computing resources.
The ASP model is technically stable, commercially viable and increasingly accepted as a
mainstream business practice. It will not always be the most appropriate route, but
experience has shown that there are a number of specific applications and business
environments where it is increasingly likely to provide the most effective solution.
This chapter reviews the factors that make application services most relevant to an
enterprise computing strategy, and provides an overview of the range of application types
currently offered by ASPs, with particular reference to Interliant's developing portfolio.

ASP CONVENIENCE
The ASP method provides a means of supplementing existing resources without significant
delay or the need to commit large amounts of advance funding. It provides access to skills
and technology investments that may otherwise be out of reach. It is also uniquely
disposable - what has been added can easily be taken away again once it has served its
purpose. These generic features have relevance to some very specific issues in enterprise
computing today.
Economies of skill
One of the most pressing issues for CIOs today is the extreme difficulty of recruiting,
training and retaining staff. The headache is exacerbated by the accelerating complexity
and pace of change in information technology.
The use of online computing services alleviates the skill shortage by tapping into external
pools of expertise and economies of scale in systems management. Most ASPs can
outperform in-house solutions because of several inherent advantages:

They can employ an advanced, automated systems management infrastructure,

spreading the cost of the investment across all of their customers
The application is already implemented and operational within their infrastructure so any
teething problems have been tackled and resolved
Since they serve the same applications to multiple customers, they have already
encountered and solved most of the common setup and operational quirks of the
software and can utilise proven best practices
The cost of expensive, highly trained staff is similarly shared across many customers,
and those staff have more incentives to stay with an ASP than the average enterprise is
in a position to offer. They get to deal with the latest applications, a large-scale
implementation and a broad variety of customer types, plus they can look forward to a
career path within the organisation
As a high-volume user of the application with a recognised high level of technical
expertise, an ASP can expect to have close relationships with its supplying vendors and
good access to their expert technicians.

All of this resource is included in the price when applications are delivered from an ASP. In
most cases, they are delivered to pre-set quality of service standards laid down in a service
level agreement. The only management overhead for the customer is in monitoring that
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service quality to make sure that it measures up to the pre-agreed standards. No other inhouse resource is required to operate the solution once it is up and running, and most
application services have rapid or even instant implementation cycles.
Budget friendly
Application services introduce the phenomenon of predictable costs into enterprise
computing. With in-house solutions, budgeting has tended to be more of an art than a
science. Although the cost of acquisition is fairly predictable, the cost of operating and
managing an application is notoriously difficult to estimate in advance of building up some
experience of operating the system. In the ASP model, the cost is fixed in advance,
according to the number of users and the features being used. If either of those
subsequently vary, the resulting change in the cost is also known in advance.
Since the payment covers both the application itself and its operation, there are no hidden
extras for unforeseen glitches or breakdowns - that too is covered by the price and the
service level agreement. Equally, the cost remains the same even if the user's environment
is undergoing rapid change. It does not matter if the user is relocated to a different network
or building, or installs new software on the client machine - in every case, the application
will continue to be available from the provider's remote data centre in exactly the same way
as before.
Implementation too is less costly than is the case with conventional methods of acquiring
computing. Since there is no upfront payment to acquire the software or the server, it costs
less to get started. There are fewer technical issues to overcome, since by definition, an
online application is network ready. It can therefore be accessed without modification in any
standard network environment. The only implementation work that may be necessary is to
provide integration between the new app and existing apps that are run in-house, or to
configure the application to the specific business processes of the customer organisation.
These implementation and other cost of acquisition factors combine to make new or
specialist applications more affordable and easier to implement using ASPs compared to
traditional methods.
A flexible friend
Although high-end applications are typically supplied by ASPs on three-year contracts,
online applications of the type available from AppsOnline.com give enterprises the freedom
to use them on an as-needed basis. This feature can be deployed to great effect when
moving into a new business area or taking advantage of a new application capability, since
the move can be tested without committing a large investment in a resource that may only
be used for a short time.
In the case of more sophisticated applications, there is still scope to simply 'switch on' or
'switch off' new users or new functionality almost instantly. Similarly, upgrade revisions and
interim releases of the software can generally be implemented without disruption to the
service that users experience. A further boon is a trend among software vendors to use the
ASP model to demonstrate and configure applications prior to implementation, giving
enterprises much more of an insight into the suitability and scope of the software.
As ASP aggregators like Interliant become more adept at managing integrated portfolios of
applications, the ability to introduce or trial additional applications will become a routine
benefit of the model.

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Network ready
Internet-based applications come into their own when the function is one that is to be
accessed by users spread across several locations or organisations. Deploying and
maintaining applications on multiple sites is complex and costly using traditionally installed
software. But if the applications are hosted on Internet-based servers, they are immediately
accessible from any web browser. The browser does not have to be on a PC or a network
terminal. It could be on a handheld computer, or even a mobile phone or other wireless
appliance. Distance becomes no object, since the Internet is designed to allow access to
any server irrespective of physical location. Likewise there are no incompatibility issues
when sharing an application across separate organisations, even if each party uses
completely different and incompatible local network systems, application suites and client
environments.
Enterprises can exploit these benefits by setting up and running Internet-based applications
themselves. But delivering applications across a wide area network is a complex skill, and
in the Internet environment, the additional overhead of maintaining 7x24 operation is the
accepted norm. Turning to an ASP is the final step in taking advantage of the networkbased architecture of the web server model. Having the application managed by an ASP is
simply a matter of changing the hosting location from an in-house data centre to an
external provider's, in the process moving it closer to the appropriate skills and resources.

ASP-READY BUSINESS ENVIRONMENTS

The characteristics of adaptability, flexibility and network readiness associated with
application services makes them highly suited to certain types of business environments.
The market experience of Interliant and other providers have demonstrated that ASP
delivery offers concrete benefits to customers where any of the following are present in
significant numbers.

High growth
No type of business is more in need of the ability to quickly access computing resources
than a business that is growing fast, particularly small businesses and those in
industries with a high proportion of startups, such as technology and Internet. There is
little time available to find staff, evaluate alternatives and gain expertise. Growing
businesses just want to access a resource that will get the job done so they can forge
ahead to the next milestone.

Mobile workforces
Better communications and advances in portable computing have increased the use of
automated solutions in field sales and customer service. But in order to operate such
solutions, an organisation must become an expert in the provision of applications to a
dial-in user base across the wide area network or Internet. Many customers have found
it makes sense to use an outside provider to deploy and operate applications such as
sales force automation and customer relationship management, using infrastructure
and expertise that is dedicated to implementing and operating such applications.

Changing headcounts
When the IT organisation needs to react fast to rapid changes in the user base of an
organisation, being able to call in the services of an ASP provides valuable extra
resources. Corporate reorganisation, mergers and acquisitions and expansion into new
geographies or business areas all place extreme demands on an IT infrastructure, at a
time when IT staff are under pressure to adapt existing systems to the new corporate
landscape. Using an ASP to deploy applications relieves the pressure on internal IT
staff and retains a level of adaptability to further change that purchased solutions lack.

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Highly distributed branch networks

Rolling out applications to an extensive branch network is a complex, costly exercise
using traditional client-server computing. Many organisations are seeking to ease this
overhead by moving to server-based architectures in which branch staff access
applications using a web browser interface or other thin client. The organisation's
central data centre thus becomes a remote service provider to the outlying branches,
but without the expertise in handling wide area network communications that a
specialist provider possesses. Having made this move, it is a short, simple and logical
step to use a third-party provider to fulfil that role, taking advantage of the provider's
greater expertise and economies of scale.

Extranets
Unlike purely internal deployments, extranets require significant security preparations
that further increase their cost and difficulty. An ASP will have built the sophisticated
firewall and network technologies needed to securely connect with partners and
customers, making deployment that much easier.

Virtual teams
Today's business environment is giving rise to a proliferation of ad hoc teams and
'virtual corporations', where participants are scattered either geographically or across
multiple organisations, with members often joining for short periods to contribute
specific components and then leaving again. ASP delivery of Internet-based shared
applications overcomes these hurdles and allows such teams to work together
seamlessly and cost-effectively.

ASP APPLICATIONS FOR THE ENTERPRISE

The range of applications available to enterprises from ASPs grows by the day, as more
and more vendors and providers enter the market. The principal application types on offer
fall into the following categories.
E-commerce
Businesses ranging in size from sole proprietor operations up to very large corporations
look to providers to host and operate their e-commerce applications. Many ASPs include
vendors such as Microsoft, Broadvision and Vignette on their list of application services.
Interliant likewise, with a strong background in web hosting, offers e-commerce hosting
based on Microsoft and IBM platforms. But while some of these software vendors are
beginning to introduce rental-style licensing into their relationships with providers and
customers, to describe e-commerce hosting as an application service is to stretch the
definition into the sphere of outsourcing. By their nature, e-commerce sites are heavily
customised to the individual needs of the client, rather than being a packaged service that
is delivered to multiple customers.
A much better example of an application service - and one that is spreading with great
speed - is electronic purchasing. This business-to-business e-commerce application
requires standardised links between buyers and sellers and thus lends itself to a third-party
provider model. Vendors such as CommerceOne and Ariba who have been early entrants
into this market initially began selling their solutions to large enterprises in a traditional
manner. But they have quickly found that this slows the rate of adoption and raises a
barrier because of the upfront investment required. Since one of the keys to the success of
their business model is achieving critical mass, they are turning to the ASP model to gain
rapid market penetration.

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Interliant has chosen to team with Clarus to offer the software vendor's eProcurement
application. Clarus made the bold move last month of selling off its ERP product suite to
another vendor in order to focus its own resources on the ASP model. Customers
previously paid upwards of $1m per implementation for its electronic procurement
application. Now it has embraced what it calls a "zero capital" model of teaming with service
providers and offering the application on a per-user, per-month basis.
The dual combination of electronic purchasing with the ASP model has a dramatic
consequence for enterprises. E-purchasing is acknowledged as a means of reducing
administrative costs from up to $150 per purchase order raised by the typical organisation
down to just a few dollars, or even less. That was the rationale for large enterprises to
make multi-million dollar investments in the technology. Using the pay-as-you-go ASP
model, that upfront cost disappears, with the result that enterprises can begin to earn a
return on investment (ROI) from day one. Indeed, since ASPs, like any other business,
invoice at the end of each month, their customers may even find themselves enjoying
returns before investment (RBI).
Clarus is teaming with a number of ASPs, and this opens up the theoretical potential for a
customer, having implemented with one provider, to subsequently move their Clarus setup
to an alternative. It will be up to Interliant and its Clarus-hosting competitors to secure
customer loyalty through providing a competitive service and perhaps also offering
complementary applications or vertically tailored packaged offerings and services.
Customer relationship management (CRM)
The gamut of customer relationship management applications, from sales force automation
through to customer service call centres, has been seen as a prime candidate for delivery
via ASPs. There are two principal reasons for this. The first is that front office staff are far
more likely to be road warriors or distributed across branch offices than are back office
staff. Thus as user groups they fall into one of the categories most suited to ASP delivery.
The second is that CRM is a relatively new class of application and thus potential clients
are more likely to be lacking the necessary in-house application skills. Alternatively a CIO
may not have sufficient technical resources to allocate to supporting a brand new
application, even if the sales director has already had the board's approval to go ahead
with implementation.
Lotus Notes/Domino has been a popular platform for sales automation applications
because of its suitability for use with distributed workforces, and therefore Interliant has had
some experience with hosting this type of application, including Prevail Professional from
Synergistics, which it continues to offer. However, while this will fill an entry-level role, it
requires installation of a Notes client and thus is best suited to existing Notes users. To
offer a complete range, Interliant must fill out its CRM portfolio.
While the company has not yet introduced new CRM offerings, it has already forged
relationships with two leading CRM application vendors, and firm announcements of
application services based on their software are unlikely to be long in coming.
The first ISV partner is Onyx Software, a leading sales automation and CRM vendor on the
Windows NT platform that already has an established ASP channel. This month, Interliant
bolstered its Onyx skills base with the acquisition of London-based systems integrator
Sales Technology, a specialist in CRM solutions based on the vendor's products. It is
becoming increasingly common for ASPs to acquire skills in a particular application by
acquiring a leading integrator for the package. In some cases the ASP uses the acquisition
to strengthen its own direct sales of the package. In other cases, the skills acquired are
employed in developing and supporting the service for supply via channel partners of the
ISV. Interliant must be careful to make a clear choice between the two paths to avoid
channel conflict developing.
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Its second partner is Pivotal, a vendor that is actively positioning its web-based customer
relationship suite for the ASP model. As a package that, like the Clarus product, has been
developed from the ground up for web-based operation, it is in a class uniquely suited for
ASP delivery.
It will be important for Interliant to offer integration of CRM solutions with other applications
and online services. One of the attractions for enterprises of turning to an application
service provider for CRM - particularly one with a strong e-commerce background - is to
have the ASP take care of integration between the two applications. Analysts have
stressed the importance for any business of linking together e-commerce and CRM. This is
an example of where ASPs can offer real value through combinations of applications.
In due course, the value of broader aggregation of applications and services is likely to
surface earliest in this application area. For instance, an ASP who provided CRM
applications would enhance its offering if it were also able to offer virtual call centre
services as an optional extra. Probably requiring an alliance with a separate call centre
provider, this is a useful example of the potential for enhanced service offerings through
aggregating third-party services around a core set of applications.
Enterprise resource planning (ERP) and accounting
Most of the attention focussed on the ASP industry to date has been concentrated on
providers who offer ERP and accounting applications from vendors such as SAP, Oracle,
JD Edwards and Peoplesoft at the top tier and such as Great Plains, Lawson Software and
others in the midmarket.
The attraction is perceived to be the greater affordability of these applications when
delivered using the ASP model, since the usual upfront investment in purchasing the
software licence and implementation can be amortised over the life of the contract. For
fast-growing companies and startups, there has been the additional attraction of moving
directly to a top-tier application rather than having to pass through an interim stage as the
business grows, with all the disruption implicit in changing from one application suite to
another.
However it has been notable that ASPs offering this type of application have found it hard
going to sign up customers, except among high-growth technology companies. Most
enterprises do not have sufficient confidence in the ASP model to entrust their core
business systems to one of these new providers. It is only where the benefits become
overwhelming - for instance in high-growth or highly distributed enterprises - that the
balance tips decisively in favour of ASP delivery.
Interliant's decision to hold off from introducing this class of application straightaway is thus
a sensible reading of the market. Enterprises will migrate their ERP and accounting to the
ASP model once they have already committed to ASPs and found them reliable in
providing other, less established classes of application.
Messaging and collaboration
It is hardly surprising that messaging should have been one of the first applications to be
hosted, since its purpose is to shrink distances and thus inevitably it has been deployed
among distributed groups of users that are natural candidates for ASP delivery. In the
largest organisations, it is also highly infrastructure intensive and vitally mission critical. If
an email server goes down, messages get lost. Few enterprises have the data centre
resources available to keep servers running every minute of the day on a 24x7 basis.
Early hosting of messaging has been a proving ground for application sharing. One of the
challenges of the ASP model often overlooked by outsiders is the fact that mainstream
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client-server applications are designed to be owned, not shared. That is why Notes hosting
has remained a minority activity until recently. Most providers have only been able to offer it
on dedicated servers, unable to realise the economies of scale that are available when a
single server system can be shared by multiple customers.
It took considerable effort and development work on the part of Interliant to make Notes
fully shareable in those early days when it first began Notes hosting. While the current
version of the product includes features that make it easier to support operation in a shared
data centre, its architecture still assumes single-enterprise deployment, and it remains
complex to set up as a shared system. Its rival Microsoft Exchange is even less suitable for
sharing and requires highly specialised customisation to allow sharing. However Microsoft
has committed to re-architect Exchange for shared operation in its next release.
This year, Interliant has added a new variation on its Domino hosting service, called
eReach. In this delivery model, the ASP still provides the application as a hosted service,
priced on a per-user per-month basis, but the servers are actually located on customer
sites. Despite aspirations to universal, pervasive connectivity, in the real world high-quality
telecommunications lines are not always available, and even where they are, they
sometimes go down. Replication to a local server is often a more cost-effective means of
providing for continued productivity than adding sufficient connectivity to guarantee the
communications link. The ability to support satellite servers - and indeed desktops - is likely
to become a necessary part of an enterprise ASP's offering.
Messaging and collaboration are obvious complementary applications to e-commerce and
CRM, and the ability to offer integrated solutions will be another benefit of ASP aggregators
such as Interliant. Indeed, one of the evaluation criteria that potential customers of ASPs
should take into account ought to be the range of applications available. To this end,
Interliant must add Exchange hosting to its messaging portfolio as early as possible. Given
that its new acquisition Sales Technology has Exchange as a second area of competence,
it may be deduced that this is not far away.
Distance learning
The extent to which education and training is already delivered as an application service is
often overlooked. It is an interesting example in that a hosting provider like Interliant will
typically provide its service to an education or training organisation, which will use it to
deliver content to trainees or students. Thus the hosted organisation is the provider of the
main service, with the underlying computing simply a delivery mechanism. However
Interliant also has a direct relationship with the course recipients since part of its service is
to register users and collect course subscriptions. The example illustrates that end users
will interact with ASPs in different ways, sometimes directly, sometimes as an infrastructure
provider or subscription management agent.
Instant applications
A growing number of entry-level and point solutions are available in the form of online
rentable applications. They are as useful to meet specific needs in large enterprises as they
are to fulfil core requirements in smaller organisations.
Provided ready to configure and use online, and accessed through a browser without any
local install, the most prevalent examples include:

Website and e-commerce store designers

File sharing and document management
Project management
Business administration
Electronic marketing

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Email managers
Teleconferencing
Unified messaging
Specialist point solutions

It is important for an ASP aggregator such as Interliant to ensure where relevant that the
solutions offered at this level can be integrated with, or allow migration to, the more
sophisticated applications also offered by the provider.
Vertical market applications
Certain vertical market sectors, particularly healthcare, construction, professional services
and high-tech manufacturing, are proving avid early adopters of the ASP model. Tapping
into a shared skills and systems base allows participants to amortise the additional costs of
catering to their special needs across every member of the group. Interliant is targeting its
AppsOnline.com particularly at vertical market groups, but it may need to move rapidly to
stay ahead of other providers more attuned to the specific needs of each individual market.

EVALUATING THE PROVIDER

Turning to an application service provider puts an enterprise in a position of complete
dependence on a third party. This is not unusual in business - enterprises depend on
telephone companies for their telephone service, and they depend on banks to process
financial transactions for them. But before entering into a service relationship with a phone
company or a bank, a certain amount of research is prudent to ensure the provider is
capable of delivering the required services to a competent and consistent level. The same
disciplines apply with even more stringency to ASPs, since it is an industry where best
practice has not yet been established and generally accepted. There are a number of areas
where a potential client must satisfy themselves of the provider's capabilities.
Fitness for purpose
The first step is to assure that the application has been properly prepared for ASP
deployment. The provider should be able to show some experience and expertise in
operating application services, and the service itself should be professionally presented as
an ASP proposition.
It is important to establish the financial stability of the provider. It will inevitably have made
substantial upfront investments in data centre facilities, staff and equipment in order to be
in a position to offer ASP solutions to multiple customers. That financial stability must
remain secure for the lifetime of the contract in order to assure continued service.
The provider should demonstrate an understanding of the product and its use in ASP
deployments. It is also important to determine that the provider has a secure relationship
with the application vendor that will be sustained throughout the intended contract period.
Subscriber management infrastructure
Service Level Agreements (SLAs) are a vital component of any application services
relationship. They determine what the client can expect in return for the subscription or
rental payment, and provide a basis for resolving any disputes or interruptions to service. It
is up to the client to verify that the quality of service guaranteed by the SLA measures up to
the needs of users. The provider must take responsibility for monitoring its performance
against the SLA, and it must make sure sufficient resources are available to correct any
problems before they threaten to breach the SLA limits.
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If a provider does not demonstrate a professionally-prepared SLA and an infrastructure that

is able to support it, then the client should find an alternative supplier.
Delivering on the promised flexibility and responsiveness of the ASP model places special
demands on a provider's administrative resources. Providers must demonstrate a robust,
preferably automated, system for tracking subscriber accounts, with an auditable record of
each change and reconfiguration. This should link into an efficient billing system that
provides customers a clear and detailed invoice every month.
Where the relationship with the provider will be a long-term one, then it is important to give
some thought to upgrade paths and scalability, particularly in the case of entry-level rental
solutions. Many rental applications in the market today have been created to reach a
volume market, but with no thought given to any upgrade path once their limits have been
reached. Likewise, some providers are not set up to host applications beyond a certain size
or reach. Some assessment of the provider and the application's ability to scale to the
furthest potential extent of the requirement is always advisable, in order to weigh up the risk
of reaching the limits at a critical point. This is particularly prudent in the case of ecommerce trials, where success can lead to sudden rapid expansion. Being forced to move
to a new platform in the midst of such success could fatally undermine this type of project.
Technology infrastructure
Since one of the reasons for going to an outside provider is in order to achieve higher
standards than are possible using in-house resources, customers expect high standards
from third-party providers. The provider's technology infrastructure underpins the reliability
and performance of any ASP solution, and should be expected to surpass the customer's
own in-house setup. If a provider's facilities do not impress, it is a sure sign that the delivery
will also be a disappointment.

Performance
The data centre should incorporate technology to maximise performance, with loadbalancing across servers, high-bandwidth links to external networks and highspecification server platforms. There should be dual redundancy in servers, network
connections, power supplies and at other points to ensure that, in case of a failure of
one component, service can be continued.

Data safeguarding
The provider should be able to show state-of-the-art data protection capabilities, with
Raid storage or similar, frequent backup, a disaster recovery plan and high standards
of physical security. There should also be a clear procedure for the client to recover
data from the provider at the termination of the relationship or contract.

Security
Various measures are necessary to protect client data. The data centre should have
sophisticated firewall protection against unauthorised access to servers. There must be
clear procedures for authenticating user access to the applications. The provider should
also operate stringent in-house security procedures to protect against infringements by
employees or physical intruders.

Systems management
A sophisticated infrastructure is required to oversee the operation of the data centre
and ensure that service is maintained within SLA parameters at all times. The system
must be managed at the network, data centre and applications level, with the objective
of ensuring users always receive a satisfactory experience when working in the
application.

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Support infrastructure
It is when something goes wrong that a service provider's operation is really put to the test.
Even in the case of a single rental application that progresses without any technical hitches
for six months, if there is then an invoice error that goes unresolved or the application goes
down for several hours without any explanation, it poisons the entire experience.
It is essential to verify that any provider has proper procedures for dealing with support
problems, including those originating from subcontractors or which might require technical
support from the application vendor. Users are also entitled to expect predetermined
response times to be set and met.
Provision of an effective level of service depends on the tight integration of in-house and
partner resources, across sales, implementation, operations, application development,
customer service and technical support.

ASP DELIVERY CHANNELS

During the first year or so that the ASP industry has been in existence, provision has
generally been direct to users. This summer has seen the first emergence of a channel
model, in which ASPs form partnerships with ISVs, resellers and systems integrators to
achieve more extensive market penetration. Increasingly therefore, an enterprise may find
that its access to application services is through resellers rather than direct from the ASP.
Enterprise applications which require significant implementation work have traditionally
been delivered under the application purchase model by systems integrators. While there
are some exceptions, it is becoming evident that the larger ASPs are generally falling in
with this channel structure, and forming channel partnerships with solution providers who
will take care of consulting and implementation of the application. Once implemented, the
customer relationship is directly with the ASP, but the channel partner remains available to
help with implementation support issues and modifications.
Mid-market applications that have in the past been delivered through a reseller channel are
adopting a similar model, in which the reseller acts as the sales and implementation agent,
and then continues to provide local support after service provision begins. A variation on
this scenario is where an ASP hosts an application for an ISV, and provides the application
service to the ISV's customers on its behalf.
What this means for customers is that in many instances they can continue to deal with
resellers and integrators they have always dealt with for their computing needs, but can
now look to those providers to act as agents for the supply of application services as well
as installed solutions. They must make sure to establish that a strong, contractual
relationship exists between the agent and the service provider, sufficient to assure
continued service throughout the term of the contract.
As ASP provision becomes more prevalent, resellers and integrators may find a new role
as ASP aggregators. It is unlikely that one provider will ever be able to satisfy all of the
computing needs of a typical mid-sized business, unless it specialises in a specific industry
sector. Thus IT solution providers will have a new role to play in helping clients to integrate
together different application suites delivered from different service providers.
As Interliant begins to form relationships with systems integrators and ISVs to become
delivery partners for its services, it should aim to set best practice standards in the
endeavour. It already has significant experience of dealing with smaller ISVs in delivering
hosted applications, but there is much that still has to be refined before the ASP industry
will be able to point to robust, proven channel models.

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APPLICATION SERVICES STRATEGIES

The maturing of the necessary technologies and the emergence of ASPs have given new
credibility to application services as both a tactical and a strategic option in enterprise
computing today.
Their arrival coincides with a business environment that is ripe for this type of on-demand
computing provision. Business conditions change at an alarming pace, there are
overwhelming competitive pressures to adopt new technologies and applications, and
workforces are increasingly dispersed or mobile.
Application service providers bring an orderly, reliable solution to these multiple challenges.
Especially suited for new-world networked applications including electronic purchasing,
customer relationship management and long-distance collaboration, they provide a skilled,
cost-effective source of solutions that lend themselves to rapid deployment without massive
upfront investment.
Enterprises who wish to reap the benefits would be well advised to start acclimatising
themselves to the ASP environment today. Responsible early-adopting providers like
Interliant are helping to establish rigorous best practice standards for this young industry
and demonstrating the benefits in proven customer implementations.
Now the next phase of development of the industry is under way, giving customers the
ability to source multiple solutions from a single provider. Customers stand to gain even
more cost efficiencies from ASPs who can provide a ready-made infrastructure for
integrating multiple applications and services. With its extensive practical experience of
offering and managing application services, Interliant is well placed to blaze a trail in the
evolution of the ASP aggregator model. In doing so, it will be pioneering new economies of
scale in the provision of computing to tomorrow's enterprises.

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