Inside or Outside

Inside or Outside

Should you bring a commercial solution in-house or use an ASP?

Last week we reviewed the requirements for ‘build or buy’. If you make the choice to ‘buy’ a commercial solution, the next big decision is – do you bring it in-house, or do you let someone else manage it for you?

For financial institution business managers and IT professionals, let's again consider two services that you are most likely to evaluate in the upcoming months:

• Open Accounts: A solution to open accounts online, in branch and call centers.
• Move Money: A solution to allow a user to move money from one account to another account anywhere.
The market conditions have made these two services prime candidates for new deployment or upgrade in 2006. When evaluating your commercial solution deployment options, again, you have several factors to consider.

First, let’s review the basic deployment approaches:

• In-House Deployment: The company licenses the software, installs the software in its data center, configures the application, makes necessary modifications, deploys for use, operates it, and maintains and supports the service as needed.
• ASP: An Application Service Provider (ASP) makes the software available to its customers over the Internet, usually on a subscription basis. ASPs own and operate the software application. They also own, operate and maintain the servers that run the application.

• SaaS: Software as a Service (SaaS) is basically the same as ASP. The difference, if any, may be articulated in the way in which all the customers access the same application - many customers running on a single database - whereas with ASP, each customer runs his own application. (eBay, Salesforce.com, Digital Insight)

• On-Demand Service: Again, another name for ASP or SaaS where the customer uses a hosted application and pays for the usage.

For rest of this article, we will use the term ASP to include SaaS and On-Demand Service. If you are keeping up the press, ASP is a hot topic, and the wind is blowing in its favor. It is essential for financial institutions to compare the benefits and risks of bringing an application in-house versus using an ASP. Now, let’s weigh the pros and cons of each approach:

• Costs: How much will it cost to deploy the solution in-house? How much will it cost to use an ASP? Is there greater one-time cost for in-house deployment and greater ongoing cost with ASP? Did you factor in both the direct and indirect costs for in-house deployment? Will the success of the project make it more costly with usage fees and
hence less attractive? Do you have a data center and servers needed for the in-house approach? Make sure you consider various scenarios for three to five years in your cost analysis.

• Risk: Is there greater risk of data loss and security violation with ASP? Is there a greater risk with your key employee leaving the project? Is the ASP financially sound? When using an ASP, you could potentially lose access to your data if there is a service outage. Most ASPs run backups for their own protection; however, you need to make
sure it is adequate for your purpose.

• Security and Compliance: Does the ASP follow your industry standards and comply with audit requirements? ASPs have greater flexibility to invest in the necessary controls and learn from experience to stay on top of all security and compliance issues that your limited resources and staff may not be able to do. You need to make sure
the ASP meets or exceeds your own requirements for security.

• Operations and Control: Are you willing to trust an external company to run your business applications? When you bring the solution in-house, you are taking all the responsibilities to maintain, operate and support the service. Are you set for 7x24 support year around? With an ASP, you give up some control, but you also make them responsible to the desired service level. Make sure you have a clear understanding of the roles and responsibilities to achieve the desired results.

• Domain Knowledge and Skills: While both in-house and ASP deployments allow you to depend on your software or service provider to keep up with the latest features and functions in the application, you may not have in-house expertise to take advantage of it or your upgrade cycle may be slow. ASPs are motivated by competitive pressure to keep up with the latest version of its application. Do you have the required technical expertise and staff to deploy the service in-house? Can your staff maintain changing technologies and services, or will an ASP be able to do it better?

• Time to Market: How quickly do you need the solution? With a commercial solution you got yourself a head-start, but chances of your in-house deployment going faster than an ASP solution are slim. If this is critical, go with an ASP that has a good reputation on delivery.

• Configuration and Customization: This could be one of the most important criteria in the selection of an ASP. If you do not wish to change your business to fit the business process supported by an ASP, you need to find an ASP that is flexible to give you the best of both worlds. They run and support your application for you, but at the same time, they are able to separate your service from others so that you can have it anyway you like it without being dependent on what other customers wish to do. Some large ASPs like Salesforce.com have been slow to adopt this kind of approach, but new innovative players like uMonitor are recognizing the needs of their customers and allowing them to create a custom or semi-custom solution in an ASP environment.

For initial deployment, an ASP is the preferred approach for most of you trying to get to market in a timely fashion. For long term, you may consider other options if you must have an in-house solution for political, cultural, financial or other reasons.

In the next issue, we will discuss factors to consider before choosing your Application Service Provider with primary focus on Security and Customization.