SOUND INTERNET SOLUTIONS
By John Ashenhurst
Should you delegate running your software to someone else?
Some agencies have made the switch to ASP--but most aren't ready. Are the early adopters on to something? Or are their more conservative peers right to wait and see?
When computers first arrived on the scene, they were too expensive for agencies to buy and operate, so service bureaus arose to allow agents to share computers, software, and data center infrastructure. Mini-computers, then networked PCs running DOS, then Windows software put management system, rating, and other software in reach of most agencies, and conventional wisdom had it that the right approach wasn't to share but to have your own system.
However, in the last two years the picture has changed. Some vendors are now offering their customers a choice: Install and run the software locally or have the vendor host the software, then you access it through the Internet. And as a further development, a few vendors have developed packages that can be run only from the Internet; you can't install the software and run it in your agency. Typically, vendors that offer their software through the Internet are called ASPs--application service providers.
Some agencies have made the switch to ASP--but most aren't ready. Are the early adopters on to something? Or are their more conservative peers right to wait and see?
A few years ago, during the Internet Bubble, experts predicted that shortly everyone would "rent" hosted software rather than bother buying and installing it. There were clear advantages to the ASP option--or so it seemed. The ASP would keep the software up to date, do backups, upgrade server hardware as needed, and generally take over many of the increasingly complex technical duties businesses found themselves saddled with.
The Internet Bubble burst and with it the prospect that the world would move wholesale to hosted software services. But interestingly, over the last two years, the ASP concept has caught on with at least some agencies, and scores are migrating monthly. Still, most agents aren't planning to outsource their software hosting anytime soon. After a long struggle, they've gotten to a point where things seem to work pretty well with in-agency software. Why do something new--and look for trouble?
So what's the truth about the ASP alternative? Is it something all agencies should be interested in? This article will focus on four central questions:
* What is an agency ASP?
* What are the dangers with an ASP?
* Can an ASP save you money?
* Do ASPs have important advantages over traditional in-house hosting?
What is an agency ASP?
An agency ASP runs software for you, generally an agency management system, on servers in its data center and lets you access the software through the Internet. You pay a monthly subscription fee, usually related to the number of users you have. Generally speaking, you'll continue to need most of the hardware and infrastructure you already have--to access the remotely running software as well as to run local software like word processing and rating. You'll also need reasonably fast Internet access--DSL, cable, or T1--if you want what appears to be local performance from a remote system. The principal advantage of ASPs is convenience. They relieve you of some hardware (e.g., server upgrades) and software (e.g., updates, backups) tasks, leaving you free to focus on the insurance agency business.
Some agency ASPs are willing to host most or all of your software on their servers. Other agency ASPs will host only their own software and expect you to continue to manage third-party applications on your local system.
Today most agency ASPs host exactly the same software you run in your agency. But they use additional, special software to pick up keystrokes and mouse movements from your PC, pass them through the Internet to the software running on their servers and then send back screen images. As far as you're concerned, the software looks and acts like the familiar software you've run in your office. And even though the Internet introduces some lag time, at least some agents report that the response time from the ASP is better than what they had from their own local servers.
Last year, a few vendors began to offer brand new, specially written ASP software that could take advantage of HTML, browsers, and the Internet. This native IP (Internet protocol) software looks and acts like the typical browser pages you use to search and shop on the Internet. ASP providers like the native IP solution since that means dispensing with the extra, expensive software layer that allows typical Windows software to be hosted remotely but look like it's running locally.
A third ASP alternative is to manage all the software and data on the ASP host, run some of it remotely and present it through a browser but then run some of the software on the user's local PC-- so that not so many round trips need to be made back to the host--thus improving net performance. Since all of the software is managed from the ASP server, the agency doesn't need to install the software locally--even though some of it runs there.
So, you can distinguish ASPs one from another according to whether they host only their own software (proprietary) or host others' (generic) and then whether the software is Windows with remote access (legacy), specially written for the Internet (native IP) or specially written to run some things remotely and some things locally (hybrid IP).
What are the dangers with an ASP?
Your agency depends on your agency management system being available every day, all day long. What happens if you have someone else run the software and their data center goes down? Or they're careless? Or the Internet is crippled by a new worm? Or your DSL connection fails? If you're completely in charge of your own system, aren't you safer than depending on another party and a whole remote utility infrastructure? Maybe; maybe not.
The Internet was designed by the U.S. military to be resilient, and it's proven to be so--even when growing rapidly and even when attacked by destructive hackers. Your Internet connection is likely to be as reliable as your telephone connection or power source. You're willing to live with their associated risks--which also affect the availability of your local management system. A professionally operated ASP has all kinds of resources you don't have--such as emergency power generation, hardware redundancy, and multiple connections to the Internet backbone. It's much more likely that your local system will fail than will the well-operated data center.
Is your data more secure in your agency or housed with a quality ASP? ASPs run backups at least daily and have copies stored safely off site. Does your agency do that? ASP contracts make clear they can't use or share their customers' data. Do your agency employment agreements have those provisions?
What if the ASP goes out of business or raises rates or discontinues support for your software or provides poor service? Clearly, you want to depend on ASPs that are proven businesses with a track record of success and good service.
Though the ASP alternative may appear on the surface to be fraught with risk, practically speaking, it's a reliable way to run your software and is generally less risky than depending on your own "data center"--provided you work with the right ASP partner.
Can an ASP save you money?
If using an ASP isn't going to put you out of business, you can begin to ask yourself the next question, namely whether there are financial advantages--money savings--in using an ASP over doing everything yourself. Though the question appears simple on the surface, it isn't.
Subscription vs. license fee: If you want to install management system software in your office, generally you first need to pay a license fee and then ongoing support and software maintenance fees. Sometimes you'll need to pay an upgrade fee for major new releases. With an ASP subscription, you sometimes have to pay a smaller up-front license fee and then higher ongoing fees. Once you know the numbers, you can do a simple spread sheet to see where the subscription vs. license cost lines cross. Several years out you'll find that the ASP fees overtake the license/maintenance fees.
Communication costs: Using an ASP means needing broadband Internet connections in your office. If you don't have them today, that means an additional ongoing expense. On the other hand, every agency should have high-speed Internet access anyway. Increased staff productivity will more than compensate for any increased Internet cost. So it doesn't make sense to consider broadband expenses in the comparative cost equation.
Hardware costs: You may hear that using an ASP will let you stretch the time between hardware upgrades. You won't need to go to new PCs so often because the ASP provides most of the computing horsepower and does server hardware upgrades as needed in its data center. But you probably won't see any real savings on PCs. You'll still be running office productivity software locally and wanting to upgrade operating system, office software, and PCs --without respect to what's happening with your management system. On the other hand, you could save money on servers, the most expensive elements of your network, because you won't have to upgrade them (or have as many) since servers become the province of the ASP.
Soft costs: A promising area of ASP savings is also likely to be the hardest to measure--soft labor costs, convenience, greater security, and the like. If you have a local area network and management system, someone has to do backups and install new releases. To the extent the ASP does that work, someone in your agency or an outside contractor doesn't. On the other hand, some backups and installs will still need to be done--for what isn't handled by the ASP.
My guess is that, when all is said and done, the ASP alternative won't save you money over an in-house arrangement. Or another way to put it, saving money isn't the right criterion to use in trying to make a decision.
ASP advantages over in-house
If ASPs aren't dangerous but on the other hand won't automatically reduce expenses, you need other reasons to consider changing. Here are a few:
Disaster response: If you have an ASP arrangement and you lose you office to fire or flood, you can be back in business almost instantly. You only need access to the Internet--which most of your staff probably have from home. Clearly it isn't quite that simple--but it almost is. Even if you do daily backups and take them off site, getting back on the air with your own system is much more problematic than reconnecting to an ASP host.
Branch offices, telecommuters: If you have a branch office or people who work from home or the road, an ASP solution makes the software and data conveniently available to them--without your having to add new hardware and software to your agency system.
Business partner and customer access: Most agents don't offer or support online access and collaboration to their business partners and customers--in part because it could be difficult or expensive to set up. The ASP approach makes it easier to bring others, outside the agency, into the insurance process.
Interface: Part of the problem with interface today is that thousands of agency systems must be equipped and maintained to interface with hundreds of carriers and third-party information suppliers. That's a very messy way to do things. An ASP approach brings some economies of scale to the process--and thus the possibility of deeper, broader services; lower costs; and higher reliability.
New software generation: For some years, management system vendors spent their time improving and evolving existing systems. But the broadening charter of independent agents, the potential of the Internet to link processes across business boundaries, wireless computing, and other insurance and technology developments make late '80s system architectures increasingly inadequate. Several vendors are beginning to offer brand new, reconceived, and more appropriate software--available via the ASP alternative. Those new systems may be sufficiently interesting to justify migrating from outmoded management systems--and along the way to go to the ASP alternative as well.
And finally ...
In Deer Harbor, Washington, we share a well with 20 other families. Our local community water system includes a good-sized water tank, a pump with power backup, and someone who checks and maintains it. I suppose in some ways we'd have more control if we had our own well--but we'd also have more expense and/or more trouble. I don't want to be in the water well business. Would you? And if I had an agency, I wouldn't want to be in the data center business. Do you ... really? *
The author
John Ashenhurst and his company, Sound Internet Strategy, provide information and analysis (through his Web site, www.soundingline.com), consulting, Web site evaluation, and seminar services to independent agents and their trading partners. He can be reached at johnashenhurst@soundingline.com or (360) 376-1090.