Troubling Signs

Is your ASP in good health?

February 27, 2001 -- In today's turbulent environment for anything e-related, the winds of change can buffet just about any company, and Application Service Providers (ASPs) are no exception. So, how do you know if your ASP is about to go bust?  A recent AMR Research report offers five signs to watch for so you don't get caught holding the bag.

Note: One of these signs doesn't necessarily mean it's time to jump ship. Two or more, however, could mean it's time to shop elsewhere.

1. Excessive marketing  When an upstart's ads begin to appear during the Superbowl, it's probably time to wonder if they have a cash burn-rate problem.

2. Lack of focus  If an ASP claims it can enable every aspect of e-business, proceed with caution. No one has perfected a single aspect of e-business yet, let alone every component. Look for a narrow focus where they can offer real value to your company.  A broad focus places a tremendous burden on an ASP's resources. Remember, most ASPs are not offshoots of GE or some other behemoth that has endless cash to throw their way.  A broad focus can also hinder customer service down the road.

3. A very short or long customer list  A client list in relation to the company's age can be a tell-tale sign of trouble to come. A toddler (two years or older) ASP with only a handful of customers is an indication that they lack traction in the industry. Likewise, a long list can be indicative of customer service problems.

4. Funding not in line with delivery  Look for an ASP's funding records. If it is public, these records are fairly easy to find via any financial Web site. If the company is private, they usually put out a press release about funding rounds that can be found on the company's Web site or through Business Wire or PR Newswire. With records in hand, compare the amount of funding in relation to services and technologies offered.

5. Availability of customer feedback  If customer feedback isn't readily available on the Web site or by query, it's time to reconsider.

Kate Murphy of AMR Research offers a few recommendations to consider when signing a contract with an ASP. First, speak with many customers beyond basic satisfaction issues.  Second, make sure the ASP has a good working knowledge of the application supplier and its products. Third, don't be afraid to add a migration clause that spells out how your applications can be moved over to another provider if necessary. Last, the old adage holds true with ASPs, if the price seems too good to be true, it is. Profit makes the world go round, so expect to pay for what you get.