Plugging into application services

Renting software applications via the Internet is poised to become a booming business in the fast-paced Internet economy, but the practice undoubtedly will take longer to filter down to government than to the private sector, where it is starting to bloom in small and midsize companies, experts said.

For now, government agencies apparently are waiting for "applications service providers" (ASPs) to mature in the private sector before committing to contracts.

"I would guess most agencies are a little reluctant," said Don Heffernan, deputy chief information officer for the General Services Administration. "It's probably a wait-and-see thing."

He added, however, that the ASP market is "certainly something we're keeping an eye on, because it's one of the hot topics in IT but definitely an emerging concept. We'd be open to it if it offers reliability, functionality and security—and price."

GSA has tested a small-scale project management ASP tool that would enable users to share information about project milestones and status easily over the World Wide Web, he said. The agency has not committed to signing a contract for the service, he said.

ASPs provide software, servers, networking and data storage for clients, who pay a monthly fee for access to the software and data storage. By renting, organizations do not have to deal with software maintenance issues or licensing fees, do not have to buy as much hardware and do not have to hire as deep a technical staff as they would if they used their own networks.

"The analogy goes, 'You don't build a power plant in your basement to provide electricity,' " said Mark Hynes, vice president of marketing and business development for Boston-based Turning Point Technologies, which develops software for ASPs. "You turn on your power and it is delivered by somebody who does that effectively and efficiently."

ASPs may become the future of enterprise computing—a service as taken for granted as electricity—but for now they remain an industry in its infancy.

"I think right now the vendors are evangelizing the concept," said Clare Gillan, vice president for applications research for International Data Corp. "We haven't yet seen a big surge in demand." However, as ASPs get established, the services they provide are likely to become increasingly widespread, she said.

Dick Terhorst, vice president for federal business development with Annapolis, Md.-based U.S. Internetworking Inc. (USI), one of the largest ASPs in the market, said the company already has a federal client, and one or two more are expected to sign up for software rental agreements by the end of the year.

USI's federal client is renting the popular human resources software PeopleSoft. Terhorst would not disclose the name of the agency at the agency's request.

USI this year hired two salespeople dedicated to drumming up federal business, and a third likely will be hired this year, he said. It also is working to get on the GSA schedule and expects to apply for a spot this month.

Most agencies Terhorst has talked to particularly are interested in PeopleSoft applications for human resources and financial management, he said.

Also, Terhorst said federal agencies are intrigued by ASPs because the agencies can pay for such services out of their operating budgets rather than their capital budgets.

And determining a cost for ASP service is less complicated than trying to figure out how much software and hardware a given application will need and how much it will cost.

"One person at an agency said, 'Hey, I like this idea because it's like a phone bill. I pay it every month,'" said Will Dantzler, president of Chantilly, Va.-based NetBase Corp. Among other things, the company offers an Internet-based time-sheet rental. For now, ASPs are targeting small and midsize companies with much more vigor than larger organizations, said Michael Kerr, manager of the enterprise division of the Software and Information Industry Association.

Many small companies lack the resources to install and maintain large-scale software applications like PeopleSoft, he said. As a result, renting the software becomes attractive.

Hynes argued that ASPs will not immediately be embraced by federal agencies because of security concerns.

"The impression is [that] federal agencies would be pretty hesitant to have their data stored somewhere else, and not local," he said.

But GSA's Heffernan said security probably will not stand as a central critique of the ASP model by federal agencies. GSA already has its financial and human resources data handled by a contractor and stored in a remote site, he said. The agency owns the servers, and the contractor provides the maintenance.

"I don't see it as a significant step, from a security standpoint," Heffernan said. "I'm not too sure that's scary, and that's one reason we're watching it."