The way utilities acquire and manage software solutions could change soon as a new method of software deployment gains favor. Instead of purchasing licensed software and setting up that software on their own local hardware systems, utility companies soon may access remotely hosted software over the Internet. Not only will the utility cast off the burden of administering and maintaining software on their own internal systems, they’ll also avoid the immediate and substantial cost of purchasing individual licenses for the software. Under this new model, software is ‘rented’ on a per-use basis and is hosted, administered and maintained on remote servers by application service providers (ASPs).
While the term ASP is relatively new-certainly to the utility industry-the concept’s roots go back some 20 to 30 years. In the 1970s, dialing into a more powerful mainframe computer was standard operating procedure for individuals with limited computing capacity. Now, with the pervasiveness of high-speed Internet access, individuals can access entire software applications via the Internet and not have to deal with hefty license fees or software administration headaches. At least, that’s the promise of the ASP model. Whether or not it will work in practice, in software-intensive industries, remains largely to be seen.
Some forecasters are predicting enormous and rapid growth for the burgeoning ASP market. Forrester Research, for one, predicts that the market will be worth about $6.7 billion in two years. With an even more aggressive prediction, Zona Research estimates that the ASP market could climb to $48.5 billion by 2003. But it isn’t the market forecast that will drive utilities to examine this software delivery model; it’s the potential benefits to an industry that now more than ever must concentrate on lowered costs and increased efficiency. ASP software acquisition can offer utilities lower up-front software costs, quicker implementations, a more immediately visible return-on-investment, and a lightened burden on internal IT departments. To those ends, several utility industry software vendors have begun to offer their solutions via the ASP delivery model, and slowly but surely, utilities and upstart energy marketers and providers in deregulated markets are expressing interest.
The Benefits of Non-ownership
The concept of renting remotely hosted, large-scale software solutions may be difficult for utilities to accept, but a number of software vendors are betting that the potential benefits of ASP software deployment will serve to assuage initial apprehension. Mincom has been one of the early adopters of ASP software delivery and already has one major utility customer on the generation side using an ASP-delivered solution. Through its ASP division, Tequinox, Mincom implemented enterprise application solutions at a total of nine Edison Mission Energy (EME) power-generating facilities in Pennsylvania, Illinois and the United Kingdom. The solutions are served out of the Tequinox Data Center in Denver, and all IT operations for the EME facilities are managed by Mincom. The company now offers its asset management solution, Ellipse 5.0 (a new and rebranded version of Mincom’s MIMS Open Enterprise software), as either a traditional licensed package or as a hosted application through Tequinox.
Peter Manos, Mincom’s utility industry market development manager, expects more interest in ASP from the transmission and distribution side of the utility industry in the near future. Manos points out a number of benefits to this method of software deployment, including more rapid solution implementation and less strain on internal IT departments. He also said that the ASP model may be particularly attractive to municipal utilities and smaller co-ops. The concept of paying a rental fee might fit their financial strategies better than the traditional practice of buying licensed software, Manos said.
Besides the benefit of a decreased up-front cost to the utility that rents software via ASP, Manos also pointed out that those acquiring software through a rental agreement enjoy the advantage of paying for actual usage. A traditional software purchase would require a utility to pay a certain amount per seat, regardless of the fact that a goodly percentage of the seats might use the software on only a limited basis. While ASP contracts will vary, most will allow customers to pay based on actual use. “(In the ASP model) You’re not paying for something you’re not using,” said Manos. “You might have a core group of heavy power users and then a larger group of lighter users. It’s nice to not have to pay the same big license fee for all of those users. You’re not paying for the full installed capacity; you’re paying for the actual usage.”
iMedeon is another utility industry software vendor that sees promise in the ASP model. Joe Mediate, iMedeon’s president and CEO, sees a day in the not-too-distant future when the ASP model could be the dominant model for software procurement. That’s part of the reason the company has made its mobile workforce management solution, iM:Work, available for implementation and administration as a hosted, rentable application. According to Mediate, customer interest in an ASP-deliverable iM:Work package has been encouraging.
“After 2001 or 2002, I don’t see why people would want to license a software package,” Mediate said. “People will go to the Web to subscribe to applications. By providing an ASP pricing model, the smaller company can have the same access to functionality that a large company has.
“We want to be able to reach the midmarket,” he continued. “The large market is always going to be there for robust applications. But there are a ton of other companies that need that same functionality, but they don’t have the huge IT infrastructure to keep the software up and running. The nice thing about the ASP model is that your maintenance and upgrade path are included in the price.”
Besides utilities in smaller markets, new entrants to deregulated markets also can find a lot to like about ASP software acquisition. Retail energy marketers and service providers in deregulated markets will be attracted not only to the ASP pricing structure, but to the quick system implementation that the model can provide. Speed is key to new entrants in deregulated markets, and by renting hosted applications, they can get their operations running quicker than if they went through a traditional software implementation. “Most of those new companies (in deregulated markets), when they start out, are not particularly well-funded,” said Rick Nicholson, vice president of the META Group’s Energy Information Strategies division. “The whole game for them is how fast can we get up and running, acquire customers and grab market share. In that situation, being able to go to an ASP model is very attractive. They’re going to be able to take advantage of something that already exists and start using it.”
Randy Adams is the North American vice president of Tequinox, a division of Mincom that provides ASP services as one of its business offerings. He points to quick implementation as one of the ASP model’s chief benefits. According to Adams, it would not be uncommon for a company to implement ASP-delivered software in 90 to 120 days. Compare that with the six to nine months, or longer, that it can take to complete a typical large-scale software implementation, and it’s not difficult to see why new entrants in a competitive market might begin to show interest in rentable, remotely hosted applications.
The benefits of ASP to smaller utilities and new market entrants is obvious, but even large established utilities, with their correspondingly larger IT budgets, can find benefit in the model. Nicholson gave the example of a large utility that has been running the same software package for 10 years, adding its own customizations during that time frame. After using that same piece of software for 10 years, the utility has fallen off the current release cycle. To avoid the considerable cost involved in upgrading to a new release of its time-tested software, the utility might find it less painful to access the newest incarnation of the software via ASP.
Adams agrees that utilities of all sizes should find the ASP model attractive. “A lot of people point you to the small and medium sized businesses, but the model is really applicable to large businesses as well,” he said. “That’s because the software is so expensive, and to capitalize that expense up-front, then go through a lengthy implementation without seeing business benefits immediately-that’s pretty hard for businesses to swallow.”
Bumps in the Road
Despite the obvious advantages of acquiring software through the ASP model, some impediments will have to be dealt with before ASP usage is widespread. One of those impediments is the issue of application customization. At the foundation of the ASP concept is the assumption that users can be satisfied with standardized software. The best-case business scenario for an ASP would be to have multiple users from multiple enterprises all using the same application hosted from the same server. The reality is that different industries-and individual companies within different industries-need a degree of customization built into their software.
“If they (the ASPs), start doing a lot of customization on the apps, it eats into their margins,” said Nicholson. What ASPs and vendors working with ASPs are trying to do instead is build a certain amount of configurability into their hosted applications. Without writing a great deal of custom code, they must be able to configure the rented application around the utility’s unique business processes. Both Mincom and iMedeon say that their hosted applications do afford a degree of configurability.
Other bumps in the road toward widespread ASP usage are based more on perception than reality. Some users may be reluctant to use remotely hosted software because of perceived security issues, but the fact is that technology is already in place to make working with off-site applications secure. The availability of bandwidth is probably also a non-issue when it comes to working with an ASP, and it’s becoming less of an issue all the time. While it’s true that it takes a fast connection to run robust utility software over the Internet, the wide data pipe is there for the buying.”Basically, you can get the bandwidth if you’re willing to pay for it,” said Nicholson. “Bandwidth is increasing over time, so it’s a diminishing concern.”
A Trend to Watch
Tremendous growth is predicted in the ASP market, but it remains to be seen whether utilities will latch onto the idea of accessing applications via the Internet and paying for those solutions on some sort of per-use basis. The benefits are many-quick implementation, low initial costs, an IT department freed of some of the more mundane tasks of software administration and maintenance-and are particularly attractive to utilities in smaller markets or new entrants in deregulated markets. The concept is new, but ASP-deliverable software is a trend that deserves attention as cost control and operating efficiency become business realities in the utility industry.
ASP Event Launched
The ASP Industry Consortium has endorsed an application service provider (ASP) technology-to-business conference and exhibition geared toward a number of vertical industries, including the utility industry. ASPEC 2000 will be produced by SEMCO Productions and takes place Dec. 7-9 at the Georgia World Congress Center in Atlanta.
ASP industry exhibitors at ASPEC 2000 will demonstrate technology solutions and the benefits of renting those solutions via the ASP model. “In all industries, there is an objective to maintain focus on the core business-to have the company spending its time using information rather than managing it,” said Edward C. Conrad, SEMCO Chairman and CEO. “Running a business is tough enough in itself, without getting bogged down in technology.”
“ASPEC 2000 will create under one roof the best possible opportunities for dialogue between those who need technology and those who provide it,” said Frank Sheridan, SEMCO’s vice president, technology events. “In short, ASPEC 2000 will deliver the market to the industries.”
Vertical markets represented at ASPEC 2000 include utilities, human resources, construction, accounting, manufacturing, wholesale trade, public administration, communications and others. More event information is available at www.ASPEC2000.com.