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Q: What affect will the passage of the UCITA have on ASP providers and their future growth?A: It's still too soon to tell.

[From iSource Business, March 2001] Q: What affect will the passage of the UCITA have on ASP providers and their future growth?

A: It's still too soon to tell.

The impact of a wide sweeping measure like the Uniform Computer Information Transactions Act (UCITA) is difficult to predict because of the complexity and wide range of topics covered. The areas that I believe will be the most heavily affected are consistent contracting, security and industry image.

On initial review, one would expect the UCITA to help the ASP industry because it was intended to simplify and clarify the rules for electronic transactions. Any legislation that helps companies create a single contract for users across a wide geography should help eliminate complexity and cost. Unfortunately, the wide ranging changes incorporated into the legislation may require significant corporate resources to understand and implement.

UCITA opens up issues that could harm the ASP market and risk the growth in this important industry sector. Many companies contract with ASP suppliers, such as eBreviate, to host and operate software that allows for business processes to be automated and the investment in expensive hardware and software to be circumvented. The ASP model is dependant on reliable solution delivery to customers on an as needed basis. It also requires a high degree of trust and negotiated service levels for use and performance between the ASP company and the client. The UCITA agreement opens up two specific risks in this relationship building process.

First, most ASP companies use one or more specific software packages on which to run software. The software ranges from operating systems to database platforms, or execution environments such as J2EE products. These packages are critical to the delivery of the ASP applications. What is troubling is that the UCITA proposal allows software package publishers to shut down applications remotely, without a court order, to protect their packaged software. If you are an ASP that provides services to several hundred customers at any time, the risk of one of your software package suppliers shutting down your site due to a contractual dispute or changed licensing terms is not acceptable. Furthermore, this risk will drive some customers to look away from ASPs to other options for their technology needs. The second concern is that the UCITA provision, which allows software publishers to avoid liability and damages for known defects or patent infringements, will result in more testing and validation by ASP companies to ensure that software performs as claimed. This will increase costs in the ASP market.

These two risks may influence potential customers to choose to develop their own capabilities in-house rather than use an ASP. On the surface this may seem less risky, however the UCITA rules apply to all installations and, in effect, users moving solutions in-house don't avoid risks, but actually take them on internally.

One final concern is that the UCITA support for click through terms in software licenses can lead to deceptive offerings of services in an ASP model that will exploit end-users and create an industry segment that attempts to misinform and take advantage of unsuspecting users. Thus, the image and reputation of the ASP industry as a whole will be damaged. The ability to change license terms via e-mail, almost unilaterally, will only fuel opportunistic-based behavior. When these areas of the UCITA agreement are taken advantage of by the inevitable few companies that try to exploit end-users, the entire ASP industry will suffer and growth could slow.

The UCITA intent was good, but the legislation and specific wording that resulted don't seem to fully support the intent. As drafted, the UCITA falls short of providing both end-users and ASP providers the type of consistent, easy-to-use governance desired.