Doc / Punditry / ASPs: Myth or Menace?

Probably not

It should be noted at the outset that we're not talking about the reptile Queen Cleopatra used as her suicide weapon of choice. Some might argue, however, that Application Service Providers could prove be as deadly to the software vendor, the corporate IT department and the desktop PC. I don't.

On the other hand, some (especially those with a vested interest in the status quo ante) will claim that ASPs are doomed, an idea whose time has come and gone. This is much closer to my own opinion, but I won't go quite that far. Say rather that ASPs are a pretty good idea for some things, but not nearly as many things as their supporters would like us to think.

I expect that ASPs, in fact, will prove to be mostly irrelevant. Let me summarize my major points:

In the short term:

Looking a little farther out:

A few examples


At first glance Thinkfree appears to be a typical Application Service Provider, and indeed it is often referred to as such. The claim is that Thinkfree provides a suite of ``desktop-like'' applications over the web. Closer investigation shows it to be something much more complex.

Thinkfree's ``web-based'' applications are actually applications masquerading as applets: by special arrangement, they can operate on files on your desktop computer, and they run entirely on your desktop PC. The only real difference between Thinkfree and Office is that the Thinkfree applications are written in Java, and are updated automagically whenever (Thinkfree decides that it's) necessary, rather than having to wait until the user gets around to it.

The only real web-based service that Thinkfree is providing is the ability to move some of your files out onto their servers, so that you can access them from a laptop or desktop computer anywhere in the world. That's a worthwhile service, but it's not an application service.


Services like i-drive provide a genuine service: storage on the Web. Most provide 20-25 Mb of free storage, with a nominal charge for additional storage. They usually provide access via WebDAV (which Microsoft calls ``web folders'') as well as through an ordinary web browser.

Such services are undoubtedly useful -- for now. 25Mb is enough to keep a small software project synchronized between work and home, or to make a presentation available while on the road. But 25Mb isn't very much these days -- you can buy a hard drive a thousand times as big for well under a hundred dollars, making 25Mb worth about ten cents. A 64Mb ``smart media'' card may cost $50, but it will fit in your wallet without making a noticable bulge, and 25Mb is comparable to what most people get as a web site hosted by their ISP.

Online storage services will continue to have a role in backup and data-transfer applications, where limited access is an advantage rather than a drawback. But ultimately they are doomed, as improved bandwidth makes it possible to distribute storage around a LAN and make selected pieces available from the Internet without the need for a well-connected outside service. Somebody with a DSL line to their home network doesn't need a dime's worth of storage on the Web.

Of course, noone is seriously arguing that i-drive is an application service provider.


I was talking with an accountant last night and casually mentioned that Peachtree had a web version of their venerable accounting package as well as a standalone version. After angrily informing me that it would cost her company over $2000/year to get her an internet connection from their outsourced networking provider, she added ``and why would any company put their sensitive financials on the web?''

Nevertheless, many companies do just that, outsourcing functions that include payroll, purchasing, and network administration as well as accounting. For a very small company, it can be a good deal -- a few thousand dollars a year to replace one or more employees running an expensive suite of programs that have to be updated every year. In addition, the service provider gets to do the hard work of tracking changes in the tax laws.

So here at last we have an example of a worthwhile ASP, and a model for the business. They provide a service that includes keeping up-to-date with complex laws and regulations, and allow a small business to replace a large fulltime staff with simple web connection and a manageable monthly payment. A great deal -- but how many such services are needed?

The Downside

One downside to all of these outsourced services is that one does have to trust the provider. Not only trust the integrity of their employees (after all, you have to trust your janitorial service, too), but their network security and the accuracy of their software, which are much more problematic. A 10-person business isn't a particularly tempting target for crackers; an ASP serving 10,000 10-person businesses certainly is.

Another problem with ASPs is that they're fighting an ultimately losing battle against declining hardware and software prices. As accounting software, word processors, and disk drives get cheaper, Peachtree, Thinkfree, and i-drive will find themselves squeezed toward the bottom of their respective markets. Thinkfree and i-drive, in fact, are already offering their basic service for free, and are probably making most of their money from advertising.

The Future

If ASPs are going to survive in a world of free, open-source software, dirt-cheap hardware, and bandwidth ``too cheap to meter'' (remember the promise of atomic power in the 60's?) they're going to have to scramble. I wish them well, in a general sort of way, but I'm not buying any of their stock, either.

So if not ASPs, if we're not all renting our software by the minute and our data by the byte, what then? When the world is one big high-speed local network, will it matter where data is stored and computing is done? Not much. When the equivalent of a desktop PC can fit in your pocket and costs the equivalent of an evening out for two, will anyone rent applications over the network? Not very likely.

In my opinion, we may be heading for a world of cottage industry. The web is a great leveller: anyone can be a service provider. Before the radio and the phonograph, the broadcaster and the recording company, if a family wanted music in their home they went to the piano and made their own. Now, a garage band can put their music on the web and, on average, make more money from royalties and t-shirts than they could have gotten from a recording company.

Before the big mills and their economies of scale, cloth was made at home by weavers -- some still is. Now, craftsmen sell their wares on eBay. In the recent past, freedom of the press applied only to those who owned one. Now, an astoundingly large fraction of the population has personal websites. The ubiquitous web demolishes the economies of scale that made it possible for a handful of large companies to control the means of distribution of information.

We're in for an interesting ride.

$Id: asps.html,v 1.4 2001/12/08 18:15:16 steve Exp $
Stephen R. Savitzky <>