Have you ever dreamed of outsourcing your entire IT burden--cheaply? A few start-ups are teaming up with tech-industry veterans to help small companies rent high-powered software--namely, enterprise-resource-planning (ERP) packages from SAP and PeopleSoft that, until now, only companies with more than $50 million in sales could afford.
The start-ups--dubbed application-service providers (ASPs)--provide a way for ERP makers to target small businesses. "PeopleSoft wanted a partner that could focus just on midmarket and under," says Jim Zemlin, director of marketing for Corio, an ASP in Redwood City, Calif. Corio implements and supports PeopleSoft systems for midsize customers, charging a flat fee of $100,000 to $150,000 and monthly rent of about $850.
"We could not have purchased PeopleSoft all out. It would have been well into the millions," says Alan Fraser, president of Vertical Networks, a Sunnyvale, Calif., start-up that inked a three-year contract with Corio.
As upstarts like Corio, USinternetworking, and FutureLink have led the ASP charge, large players like EDS have begun offering leasing deals with systems makers J.D. Edwards and SAP, respectively. Meredith McCarty, a senior analyst at International Data Corp., predicts this year's spending on enterprise ASPs will be $150 million and forecasts a $2-billion enterprise ASP market by 2003. "It's still emerging. The big hurdle is just the evangelization of the concept," she says.
Not everyone is convinced, though, that this is a good idea. Daniel Maude, CEO of Beacon Application Services, a $14-million consulting firm in Framingham, Mass., believes the cookie-cutter approach of ASPs--in which basic copies of the software are leased by many different clients--won't work for midsize companies, whose size and complexity demand individualized solutions. "If you want something that runs your business, as opposed to just runs a business, you'll stay in-house," he says.