Managing the Risks of ASPs

While the application service provider (ASP) model is still developing, ASPs and users of ASP services should take care to manage the business risks.

There is no question that the ASP model is capable of delivering advantages to business. However at this early stage of the industry's career, the spotlight has not been focused on those risks that may exist, and the strategies necessary to manage them.

In an industry that promises to provide greater access to business critical applications, scalability, security and reliability are among the greatest concerns. Solid service levels are (i) critical to client/business continuity, and (ii) a point on which ASPs will aggressively compete.

Both users and providers need a well-designed risk management strategy to deliver the service level foundations. Some questions to be considered by the ASP are:

• Do you have back-to-back vendor support (communications, software, hardware and services) to enable you to deliver on promised service levels?
  
  
• Are respective service level roles and responsibilities clearly defined?
  
  
• Do you expect client infrastructure to meet minimum bandwidth requirements?
  
  
• Is the term of each vendor relationship co-extensive with the term of your client relationships? If not, does your client contract allow you to provide functionally-equivalent applications? Can you source those?
  
  
• Do you maintain tight upgrade and customization control?

Some questions to be considered by the user include:

• Does your ASP have industry alliances? Do they have partner certification from any of the 'big name' IT suppliers?
  
  
• Are you satisfied that the ASP has robust security, back-up and disaster recovery plans?
  
  
• Is there scope for client specific customization? If you are interested in renting traditional applications rather than web applications, is an industry specialist ASP appropriate?
  
  
• If the services are terminated, is continuity of service guaranteed until transition to an alternative ASP is effected?
  
  
• Is there a clearly-defined transition path? Who bears the costs associated with the transition?

There are no established industry standards, best practices or precedents to help the various market players understand these and other issues. However, both the ASP Summit (see http://www.zdstudios.com/asp/) and the ASP Industry Consortium (see http://www.aspconsortium.org/) are forums developed to address these issues.

The ASP Industry Consortium has asked the World Intellectual Property Organization Arbitration and Mediation Centre to prepare a set of dispute avoidance and resolution guidelines specifically for the ASP industry. These may be available later in 2000.

In the meantime, business and delivery models are likely to be adjusted on a case-by-case basis and risk management strategies developed on the run. The quality of contracts will assume prime importance in controlling risk exposure.

For further information on this topic please contact Peter James at Allen Allen & Hemsley by telephone (+61 2 9230 4000) or by fax (+ 61 2 9230 5333) or by e-mail ([email protected]).