At the end of the 1990s, when the promise of the Internet revolution and the dot-com craze lost its luster, business analysts predicted the demise of application service providers (ASPs). However, with a new and more precise mission focus, enhanced technologies, higher returns on investment, and evolved security measures, ASPs are making a strong comeback.During the heady days of the IT boom, ASPs sprung up like weeds in a new, fertile landscape. They were conceived to provide Web-based processing software and powerful host server access to businesses so that they wouldn't have to buy their own systems and hardware.

The idea was that Internet technology would provide vital operations enhancement through remote support, and companies would save money on equipment and labor costs.

Unexpected challenges

A host of unexpected challenges soon beset the struggling industry, and by 2000, nearly 80% of the nation's ASPs floundered and collapsed.

Big players didn't realize that ASPs would have to work out many Web service bugs that restricted speed, or overcome corporate fears about security. And many ASPs didn't think things through these and other issues before they leapt into the fray.

Current ASP providers are more focused on customer service. Their mandate is to seamlessly link customers to vital data bases, help them access data content providers and meet regulatory requirements, expedite high-volume information processing, and provide a secure technology environment for core business operation.

Additionally, ASPs and their offerings speed the development of new customer products and services and reduce time-to-market requirements.

Modern ASPs offer companies augmented browser-based solutions that help them more effectively communicate with customers and improve overall business efficiency. Providers are employing new computers and faster processors to help ensure system reliability while erasing old fears about data security with sophisticated encryption techniques and firewall protections.

Economies of scale

Taking advantage of current-day technology through an ASP offering provides customer access to an economics of scale business model that spreads the cost of development among multiple organizations, while leveraging industry-specific knowledge to support in-house processing or BPO processing.

Over the last five years, process improvements and automation gains through technology have been in the 10%-15% cost-reduction range. However, utilizing current technology, ASP and BPO processing cost reductions in the 40%-45% range can be achieved.

Competing in a global world market has forced companies to re-evaluate the manner in which they operate. Niche ASP offerings afford both core technology business processing support and global collaboration to enhance business performance. They also provide the flexibility and scalability to run more efficiently than ever before.

One fault of ASPs in the past was they tried too hard to be everything to everyone, wasting money marketing services to the wrong people. Today's providers tailor business processes and workflow plans to differentiate one competitor from another while using the same base applications.

Modern customer-centric ASPs have a new mandate. They must provide unique technology solutions while decrying the cookie-cutter approach most IT products proffer. They must also support a la carte functionality within a standard application framework. This approach lowers costs for customers seeking to purchase mission-critical applications and accompanying infrastructure.

Today's successful providers have leveraged the new ASP model, especially in paper-intensive businesses like insurance and financial services where office tasks must be automated, files must be constantly updated with information from outside sources, and information must be processed according to different rules and regulations. Their solutions offer analytics, predictive workflows, and links to data content.

Potential savings resulting from these sorts of solutions run as high as 60% in IT costs, 20% in administrative costs, and additional saving in claims payout, if predictive tools and fraud services are deployed.

When outside providers enable customers to perform all necessary operations from a single desktop, their usefulness becomes clear: Companies no longer need purchase separate software and hardware systems for each of their information-intensive applications.

For ASPs in today's ever-changing environment, remaining a viable and relevant business requires a laser focus on customer-specific core business function support, rapid application development, and operational efficiency augmentation.

These strategies help customers apply economies of scale that automatically translate into cost savings. That's a fundamentally sound business practice that everyone can understand.

Steve Isaac is CEO of Bridium, an Atlanta-based technology firm offering custom services and proprietary solutions for the insurance industry.

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