Journal of Information Technology (2004) 19, 39–58

& 2004 JIT Palgrave Macmillan Ltd. All rights reserved 0268-3962/04 $25.00
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Research article

Customer evaluation of application

services provisioning in five vertical sectors
Wendy L Currie, Bhavini Desai, Naureen Khan
Department of Information Systems and Computing, Centre for Strategic Information Systems, Brunel University, Uxbridge, Middlesex, UK

Correspondence:
WL Currie, Warwick Business School, University of Warwick, Coventry, CV4 7AL, UK
Tel: þ 44 247652 4306;
E-mail: wendy.currie@wbs.ac.uk

Abstract
How value is created for the customer from e-business is a topic of much concern in
academic and practitioner circles. In the light of the dot.com downturn, numerous
e-business firms ceased to exist. This paper reports the findings from an ongoing research
study on the development and decline of the application service provider (ASP) industry.
Having witnessed the decline of the first wave of ASPs, with many failing to convince small
and medium businesses (SMBs) of the value of adopting an ASP solution, the second
wave calls for a more rigorous approach that clearly identifies the key performance areas
and indicators of the ASP business model. Applying the constructs of strategic
positioning, product/service portfolio, and value proposition, this paper represents the
findings from 215 responses to a questionnaire survey on how potential and existing ASP
customers evaluate the benefits and risks of ASP. The findings suggest that, if the ASP
model is to succeed, vendors will need to carefully identify customer requirements and
avoid the pitfalls that beset the first wave of the ASP model, which was largely based upon
a technology push strategy.
Journal of Information Technology (2004) 19, 39–58. doi:10.1057/palgrave.jit.2000006
Keywords: application services provisioning; business value; e-business values; IT evaluation

Introduction
owards the end of the last century, interest in Timbrell, 2000; Currie, 2002; Kern and Willcocks, 2002).

T e-business models emerged in many different guises.

Weill and Vitale (2001) identified eight atomic
e-business models,1 while others focused upon generic
business-to-business or business-to-customer models
(Timmers, 1999) or e-markets (Bakos, 1998). e-Business
model ontologies were also developed to help firms to
understand, measure and evaluate different aspects of
e-business models (Gordijn et al., 2000; Osterwalder and
Pigneur, 2002). These studies treat the e-business model as
the main unit of analysis and share the common goal of
identifying how value is created for the customer (Amit and
Zott, 2001). As a sub-set of e-business, application service
providers (ASPs) emerged to offer customers software-as-a-
service, priced on a pay-as-you-go model (Currie, 2000). An
ASP ‘manages and delivers application capabilities to
multiple entities from a data centre across a wide area
network’ (ASP Industry Consortium, 1999). The ASP
business model was targeted to small and medium
businesses (SMBs), to give them access to complex software
applications like ERP and CRM (previously only available
to large firms) on a pay-as-you-go model (Bennet and
This one-to-many model would create large cost savings,
with many predicting a reduction in the total cost of
ownership (TCO) of IT of between 20 and 50 per cent
(Miley 2000). By removing day-to-day hardware and
systems management duties, ASPs would give firms the
opportunity to focus on their core competencies (Colum-
bus, 2000).
ASP was depicted as a variant of information systems
outsourcing (Currie and Seltsikas, 2001; Kern et al.,
2002a, b) with comparisons drawn between traditional
outsourcing relationships and remote (ASP) forms, the
latter implying more temporal supplier/customer relation-
ships (Ahn et al., 2001).
Despite the promises of vendors, ASPs have fared poorly
in terms of attracting a large client base (Susarla et al.,
2003). Research that tracks the strategic positioning,
product/services portfolio and value proposition of ASPs
found that, out of 450 ASPs, over half went out of business
by the end of 2001, with many others developing new
business models in areas like managed services provision-
ing and data storage (Currie et al., 2003). The reasons for
 Customer evaluation of application services
40
the failure of ASPs are both technical and commercial. At a
technical level, many ASPs offered software applications to
customers built for a traditional IT (client server)
architecture. The large enterprise software vendors devel-
oped vanilla ERP and CRM suites for SMBs to run over the
Internet (Kern et al., 2002a, b). But the technology was still
developing, which meant that delivery and enablement of
these applications was not as fast or secure as the customers
required. At a business level, ASPs needed to address scale
and scope issues. To be profitable, ASPs had to offer simple
business applications to a large customer base to achieve
economies of scale or offer bespoke applications requiring
customisation at a high price. Many ASPs offered simple
collaboration tools (e-mail, calendaring, etc.) but could not
achieve the necessary economies of scale to become
profitable. Furthermore, customers needed to develop
appropriate measurement and auditing techniques to be
able to evaluate ASP success or failure (Ahn et al., 2001;
Papaioannou et al., 2002). So despite the predications that
the ASP market would grow to $25 billion by 2005, most
ASPs failed to win customers and went out of business
within a couple of years.
The fallout from the ASP market provides some
important lessons for technology vendors offering soft-
ware-as-a-service, and for e-business models more gener-
ally. Perhaps the most important lesson from the dot.com
downturn is for technology vendors to develop business
models, which create value for customers, rather than adopt
a technology push strategy where products and services are
offered to customers without a clear understanding of their
business requirements (Cassidy, 2002).
This paper presents the findings from an ongoing
research program, which examines both the supply-side
and customer-side of deploying, hosting, and integrating e-
business models, focusing primarily on the ASP market.
The primary goal of the research is to identify e-business
models that create value for the customer. The paper is
divided into three parts. Part one gives an overview of the
first wave of the ASP market, adopting Hagel’s (2002)
notion that it amounted to a false start. We discuss
taxonomies of ASP business models, which originated in
the first wave of the ASP market. We argue that each one,
which represented a template for an ASP business model,
was essentially flawed for a combination of technical or
business reasons. Part two discusses the research study and
methods used for data collection and analysis. Part three
presents the results from the questionnaire survey in five
vertical sectors (finance, IT, health, manufacturing and
travel). The survey elicited data on customer perceptions in
five key performance areas (KPAs): delivery and enable-
ment, integration, management and operations, business
transformation, and client/vendor relationships. Each KPA
was further decomposed into approximately seven key
performance indicators (KPIs). Respondents were asked to
rank the importance they attached to each KPI on a five-
point scale. The results show that data security and
integrity, and disaster back-up, back-up and restore
procedures were among the KPIs of most concern to
customers. Comparing these findings with the marketing
literature from over 500 ASP vendors suggested that a
mismatch between demand-side (customer) priorities and
perceptions of the ASP business model and supply-side
WL Currie et al
rhetoric, which over-stated cost reduction and 24  7 access
to the detriment of other considerations. Such a lack of
attention to customer requirements resulted in a false start
for the first wave of ASPs (Hagel, 2002).
The first wave of the ASP market: a false start?
The ASP industry was fuelled by the belief that utility
computing offered a new business model to customers,
enabling them to purchase computer processing power and
related services on an as-needed basis, similar to electricity,
gas and water. The commercialisation of the Internet meant
that, as network traffic increased in a firm’s data center, IT
architecture would trigger other resources into action,
including idle servers, applications or pools of network
storage. The firm would pay only for the amount of time it
used the services. Thus, the concept of software-as-a-service
was created. This fuelled opportunities in the late 1990s for
service providers to offer software applications and IT
infrastructure on a rental, pay-as-you-go pricing model
(Bennet and Timbrell, 2000). While some commentators
argued that utility computing was no different from the
service bureaus of three decades before, the technology
industry quickly became crowed with self-styled ASPs, each
attempting to differentiate themselves from their competi-
tors (Currie and Seltsikas, 2001; Kern et al., 2001).
The ASP business model was marketed as silver bullet
technology, where firms could significantly reduce their
total cost of ownership (TCO) of IT. Unlike the traditional
pricing of software applications and infrastructure, ASPs
would sell their services to meet the peaks or unpredictable
demand for IT resources. For example, firms would be able
to access extra IT infrastructure capacity on an as-needed
basis, rather than investing in the infrastructure, even
though it may not be fully utilised. Similarly, for software
applications, ASPs would sell them on a per-seat, per-
month basis. As demand increased or decreased, firms
could tailor their requirements accordingly. Accessing IT
resources in this way would result in reduced up-front
investment and expenditure, enabling firms to buy services
on a variable-price basis. Unlike the traditional IT
architecture, which often results in over-provisioning and
unused resources, the ASP model would utilise IT resources
on a flexible, as needed basis and, by so doing, reduce the
TCO.
Infrastructure and software applications outsourcing
using the ASP model would provide additional benefits as
IT assets and resources would be purchased as a service and
not owned by the customer. By outsourcing, or netsourcing
to an ASP (Kern and Willcocks, 2002) firms would benefit
from economies of scale provided by the vendor. Unlike
owning servers, which may be utilised for only 5 per cent of
capacity, the ASP would store additional customer data on
its own servers and transfer the cost benefits to the
customer. In addition to IT infrastructure advantages (data
centers and storage, etc.), the customer would benefit from
renting software applications, which would be upgraded
regularly. For example, a customer could rent an ERP
module (financials or HR) on a per-seat, per month basis.
The large ERP vendors quickly saw new business oppor-
tunities in this model, especially in provisioning SMBs with
robust software applications, which they could not hitherto
 Customer evaluation of application services
afford. Firms like JD Edwards, SAP and Peoplesoft, all set
up ASP (on-line) businesses (Currie, 2002). This was in
conjunction with numerous other players in the ASP
market offering a range of business software applications
(HR, financials, travel and expenses, etc.) on a rental basis.
The opportunities for independent software vendors
(ISVs) to develop business relationships with ASPs, or even
become ASPs, was seen as fruitful by many industry
analysts (IDC, 2000). As a modified deployment model, the
ASP would take over all server administration and
application management tasks, allowing applications to be
distributed on a highly differentiated basis (Marchand and
Jacobson, 2001). In some cases, ASPs would purchase
software licenses from ISVs and sell them onto customers.
In others, the customer would deploy an application
remotely, but continue to pay the ISV for the license and
maintenance contract (Currie, 2000).
ASPs also offered consultancy, maintenance and other
managed services, thus adding to their products/services
portfolios. So by the end of 1999, the value proposition
from ASPs looked promising, particularly to the SMB
(Bennet and Timbrell, 2000).
ASP taxonomies
Taxonomies represent ‘ideal type’ scenarios, which may not
exist in their pure form. They are useful for providing an
example of phenomena by attempting to deconstruct the
various components and/or characteristics. Variations exist
within ideal-typical categories, as well as overlap between
categories. During the first wave of the ASP market, many
different types of ASP emerged. In this section, we discuss
two ASP taxonomies, which delineates ASP firms by
product/service portfolios and market positioning. The
first captures the types of products/services offered by ASPs
(see Currie, 2000) and, the second, describes the various
types of firms under the ASP umbrella (Hagel, 2002). Each
of these categories implies a different outsourcing relation-
ship between supplier and customer. For example, the
categories of pure-play and ASP developer usually imply a
one-to-many model supplier/customer relationship, as the
ASP attempts to gain economies of scale by providing the
same hosted software application to numerous customers
(Kern et al., 2002a, b). Conversely, enterprise ASPs or ASP
resellers, offering hosted CRM, may find that customer
demands for increased customisation or integration of the
software application results in a one-to-one supplier/
customer relationship found in traditional outsourcing.
The first ASP taxonomy (see Table 1) delineates ASPs
into vertical (industry-specific), horizontal (across/within
business functions); enterprise (complex software such as
ERP and CRM); pure-play (web-enabled applications) and
infrastructure (data-centre, networking and other support-
ing technology) (Currie, 2000). It gives a description, some
examples of products/services, and the key challenges
facing each type of ASP. For example, a vertical ASP
provides software applications for rental to a specific
industry sector or sub-sector. Two Silicon Valley firms
(Aristasoft and Trizetto) emerged to offer vertical software
applications, with one focusing upon a sub-sector of
manufacturing and the other on health. Whilst many
research analysts and pundits suggested that vertical ASPs
WL Currie et al
41
offered excellent opportunities for business development,
they also needed to address key challenges, such as, a
limited customer base; potential problems in serving only
one sector/sub-sector (i.e. all their eggs in one basket);
potential over-reliance on one ISV; and others. By
restricting their potential customer base, vertical ASPs
believed they could offer a high level of service since they
marketed themselves as having an in-depth knowledge of
the sector/sub-sector they served. This is unlike the
horizontal ASP, which focused on provisioning software
applications across many vertical sectors. The success of
salesforce.com is an example of a horizontal ASP.
Horizontal ASPs therefore needed to attract a large
customer base since they were unlikely to be able to
command a high price for their offerings.2
The second taxonomy of the ASP market adopts five
categories: ASP resellers, ASP developers, ASP aggregators,
hosting services, and managed services providers (Hagel,
2002: 45). Table 2 outlines the market positioning of each
type of ASP, gives a brief description of their activities,
some example firms, and the key challenges facing each
type of ASP. Comparing the two ASP taxonomies reveals
significant similarities with considerable overlap between
categories and activities of the various players. The ideal
typical categories provided by different taxonomies offer an
illustration of the market/strategic positioning and pro-
duct/service portfolios of ASPs, and should not be treated
as rigid categories in their own right. Given the confusion
that surrounded the first wave of ASPs, attempts to
deconstruct the ASP business model and market into
taxonomies is a useful exercise, which may provide some
clarity to the phenomenon under scrutiny.
ASP taxonomies can be further mapped across the
netsourcing stack, which captures a variety of customer/
supplier scenarios ‘where relationships in this space are very
complicated’ (Kern et al., 2002b: 115). For example, an ASP
delivering a hosted software application to the end
customer, may subcontract data centre services, billing,
help desk, and other support services to additional firms.
Furthermore, the ASP may not even own or have developed
the software, as this may be the intellectual property of an
ISV. In the case of enterprise ASPs and ASP resellers,
developers and aggregators these firms may form complex
strategic alliances or partnerships with leading ERP
vendors, usually for a specific target customer. The
relationship between ERP vendor and ASP should be
mutually beneficial, that is, the former penetrates new
customer markets (i.e. SMEs) and the latter, develops a new
business model (i.e. hosted software using a subscription
pricing model).
The complexity of the outsourcing relationship between
supplier and customer will therefore depend upon the
number and scope of partnerships, the sophistication of the
products/services, and the type of outsourcing contract. For
example, an ASP firm providing an ERP suite to a large
customer is likely to enter into a large-scale outsourcing
deal over several years, compared with another ‘pure-play’
ASP firm offering a simple CRM package without
customisation (Kern et al., 2002a, b). In recent months,
the success of ASP firms like Salesforce.com suggest the
market for enterprise applications is buoyant where the
need for 24  7 access outweighs that of enhanced
 Customer evaluation of application services WL Currie et al
42

Table 1 Taxonomy of ASPs based on product/services portfolio (Currie, 2000)

Type of Description of ASP Examples Key challenges

ASP
Vertical Industry-specific (i.e. health, Aristasoft (high tech equipment Limited customer base
finance, IT) manufacturing)
Trizetto (health) ‘Eggs in one basket’
Reliant upon major vendor (e.g.
ISV’s software)
Experience economic ‘shocks’ of
sector
Customers demand integration

Horizontal Business software (i.e. human
resources, accounting, marketing)
Concur (travel and expenses)
Salesforce.com (HR)
Netledger (accounting)
Low barriers to entry/severe
competition
Undifferentiated products/services
Need large customer market to be
profitable
Must offer reliability, accessibility
and scalability (RAS)

Enterprise Complex business software (ERP, JD Edwards Product too expensive for small/
CRM, supply-chain and logistics) medium firms
Baan (now Invensys) Customers want customisation
Oracle Concerns about data security/
integrity
Peoplesoft Channel conflict with ASPs
SAP
Corio
USInternetworking

Pure-play Internet/Web-enabled software Netstore No profit from commodity

applications (email/security/ applications
disaster recovery)
Mail.com Low barriers to entry
Reliant upon VC funding
Unstable/volatile/dynamic market

Infrastructure Technology partners to ASPs Cable & Wireless (a-Services)

(telcos, data centre providers,
networking and co-locators)
Technical (bandwidth) BT Over-capacity
inhibitors Channel conflict with ASPs
No clear route to market
Severe competition
Need to differentiate products/
services

customisation or integration with other business processes.
Differentiation in products/services further suggests a more
complex procedure for benchmarking ASP performance,
with measures designed to evaluate outcomes at every stage
of the life-cycle (Ahn et al., 2001).
ASP market predictions
Despite the hype surrounding the ASP business model, with
predications that it would grow to $25 billion by 2005 (IDC,
2000), the SMB sector remained unconvinced about the
benefits of adopting software-as-a-service (Dean and
Jackson, 2000). ASPs failed to penetrate the SMB sector
(Clancy, 2001) despite their low barriers to entry and
apparent business benefits (Caufield 2000). Throughout
2001, the ASP model was highly volatile, dynamic and
immature, which made it difficult for ASPs to demonstrate
how customers would be won, and how income would be
generated (Kern et al., 2001). Most ASPs appeared to be
concentrating on developing their marketing literature
 Customer evaluation of application services WL Currie et al
43

Table 2 Taxonomy of ASPs based on market positioning (Adapted from Hagel, 2003)

Type of ASP Description of ASP Examples Key challenges

Resellers Provide new Internet-based Corio, Applicast, US Gaining customer acceptance,
distribution channel and ‘rental’ Internetworking especially new pricing models
pricing model for traditional
enterprise applications

Developers Develop new applications and
deliver on the Internet with
‘rental’ pricing model
Employease, Salesforce.com,
Captura, Placeware
Large investment in own IT
infrastructure, Long lead times,
Gaining trust and acceptance in
marketplace, Competition with
other ISVs

Aggregators Integrate and market packages of Jamcracker, Agiliti Potential channel conflicts with
applications provided by ASP ISVs, Too many products/
developers services on offer, Too many
partnerships

Hosting services Provide specialised facilities and Exodus, UUNet (Part of Potential over-capacity in an
support services for companies WorldCom, Verio (Part of NTT) overcrowded market,
deploying internet-based Confusing pricing models,
applications Partnering with ‘unstable’ ASPs

Managed service Provide specialised application Loudcloud Severe competition in over-

providers management services crowded market, Confusing
business model for customers
SiteSmith, Digex

rather than focusing upon revenue generation. Since many
ASPs had a fast cash burn and no guaranteed second round
venture capital funding (Cassidy, 2002), their vulnerability
to survive in the medium term exposed an additional risk to
potential customers. So the failure to win customers led
many start-up ASPs to go out of business. Those that
remained had very few customer reference sites. Existing
customers reported dissatisfaction with the level of service
from ASPs (Ferengul, 2002). This is reinforced by recent
research on the service delivery of the ASP solution, which
found that ‘ASPs need to facilitate integration with existing
IT in client firms, ensure superior performance delivery,
emphasize rigorous enforcement of SLAs, and ensure that
their application meets standards of software capability’
(Susarla et al., 2003: 111).
Heart and Pliskin (2001) examined the drivers and
inhibitors of the ASP business model in three categories:
technological, managerial and behavioural. These authors
concluded that the technological factors like scalability; the
managerial aspects of speed and focus, and the behavioural
aspects of price and flexibility were the key drivers of the
model. The inhibitors of the model were poor connectivity,
lack of trust in the model, reluctance to be locked into long-
term contracts with suppliers, lack of customisation, poor
choice and suitability of software applications from ASPs,
and few opportunities to integrate disparate applications
across technology platforms and business environments.
These factors and others led Hagel (2002: 43) to conclude
that,
ASPs in many respects represented a false start in the
efforts to break out of the enterprise straitjacket. In
particular, few of them adopted Web services architec-
tures as their technology platform. Instead, they
attempted to build businesses on the Internet using
traditional technology architecturesyythis proved to
be a significant flaw in the early ASP model and explains
many difficulties these businesses experienced.
While the promises and potential of the ASP market
pointed to a fruitful area for academic research, the largely
anecdotal accounts of customer dissatisfaction or disin-
terest with the business model suggested a more rigorous
approach was needed. It was therefore important to
deconstruct the ASP business model into key performance
areas, which contribute to value creation for the customer.
This led to the development of a research study, which is
discussed in the next section.
The research study
A research study was developed to investigate the deploy-
ment, hosting and integration of the ASP business model
from both a supply-side and demand-side perspective. The
research study reported here was in two phases. The first
phase comprised a pilot study, which was conducted in the
USA and UK. An exploratory-descriptive case study
methodology (Yin, 2002) was used to investigate 28 ASP
vendors and 7 customer sites in the UK. The dual focus
upon supply-side and demand-side was critical for obtain-
ing a balanced view between vendor aspirations about the
value of their business models, and customer experiences,
which may suggest a less optimistic picture. The unit of
analysis was the business model, not the firm or industry
 Customer evaluation of application services
44
level, so a case study methodology was anticipated to
provide a rich data set for analysing firm activities and
behaviour (Benbasat et al., 1987; Eisenhardt, 1989; Silver-
man, 2001). Weill and Vitale (2001: 34) define an e-business
model as, ‘a description of the roles and relationships
among a firm’s consumers, customers, allies, and suppliers
that identifies the major flows of product, information, and
money, and the major benefits to participants’.
While this is a broad definition, the pilot study was
designed to elicit data and information on three aspects of
the ASP business model: the strategic positioning of ASP
vendors; their products/services portfolio; and their value
proposition to customers. Strategic positioning focused
upon how ASPs position themselves in the wider ASP or e-
business market place, that is, if they serve particular
vertical markets (health or finance); their target customers
(small firms); how they partner with other technology
providers (telcos, networking firms, ISVs); and how they
compete (price, quality, etc.). Products/services portfolio
focused upon the types of offerings of ASPs (enterprise
applications; HR or accounting packages); how these
offerings were delivered (single point of contact; aggregated
with other applications); and the distinctiveness or
uniqueness of the service offering (product/service differ-
entiation). Customer value proposition focused upon how
value was created for the customer (benefits from entering
into partnership with ASP); how benefits and risks were
identified and evaluated (in categories such as delivery and
enablement; integration, etc.); whether the customer would
transform their business by adopting an ASP solution. The
three categories provided a template for investigating the
business models of ASPs and how value was created for the
customer. The research question was therefore: How do
ASP firms create value for their customers from their ASP
business models in relation to the attributes of strategic
positioning, product/service portfolio and value proposition?
Interviews were carried out with several members of staff
at vendor and customer firms. A list of the vendor and
customer firms is given in Appendix A. ASP vendors were
selected for their variety of offerings (vertically focused;
enterprise solutions; enablement/infrastructure provision)
rather than focusing upon a single application type (i.e.
providers of accounting software only). Vendor firms were
interviewed throughout 2000 when the ASP model was at its
most popular. Customer firms were selected across a range
of sectors (retail, finance, travel, and leisure) though all
were SMBs. Interviews were conducted at all firms with
CEOs, CIOs, business development managers, IT personnel
and marketing staff. Interviews lasted between 1 and 3 h. All
interviews were tape-recorded and the data were tran-
scribed. Customer interviews were carried out during 2001
and early 2002.
The pilot study provided an overview of the different
business models emerging in the first phase of the ASP
market. The results pointed to a wide range of ASP business
models from firms across the software and computing
services industry. For example, the telecommunications
firm, Cable & Wireless, set up a-Servicest to offer software
applications in partnership with ISVs and other applica-
tions and infrastructure vendors. This subsidiary, however,
amounted to only a small proportion of their entire
business. It was therefore important to treat the
WL Currie et al
a-Servicest subsidiary as the main unit of analysis, rather
than the firm as a whole. Conversely, it was possible to
investigate start-up ASPs as the unit of analysis, as their
business model was largely confined to the provision of
software-as-a-service, with all their revenues generated
from this single activity. As we saw in Table 1, above, the
ASP business model can be delineated into a taxonomy of
five types, with vendors developing their strategies,
product/services portfolios and value propositions to serve
specific customer markets/sectors or sub-sectors.
The results from the pilot study led to the funding of two
additional research studies3 by the EPSRC and ESRC
respectively, with industrial collaborators occupying the
roles of technology partner; ASP; and customer/user. These
studies were concerned to identify sources of value creation
from the ASP business model in five key performance areas
(KPAs): delivery and enablement; integration; management
and operations; client/vendor relationships; and business
transformation. While these categories derived from the
pilot study research on the various ASP business models,
they were further developed and tested in the second phase
of the research study. For example, each technology
partner, ASP, and customer/user contributed to the
development of the research agenda through in-depth case
study research. The different backgrounds and roles of
these industrial collaborators was invaluable, as it provided
the opportunity to engage with the mental models of both
the supplier and customer in relation to how the ASP
business model was developed and implemented. From this
exercise, a questionnaire survey was designed to elicit data
and information on potential and existing customer
perceptions on the KPAs of the ASP business model. The
questionnaire survey was intended to provide ASP vendors
with a snapshot of customer priorities within the KPA; and
also provide potential and existing ASP customers with a
template for evaluating the ASP business model. This is
discussed in the next section on methods of data collection
and analysis.
Methods of data collection and analysis
ASP database
The pilot study on 28 ASP vendors (see Appendix A)
carried out in the USA and UK was assisted by the creation
of an ASP database, which housed over 700 international
firms, all of whom had developed an ASP business model.
This database was developed largely from the collection and
organization of secondary source data. For example,
e-business trade fairs were a fruitful source for data
collection since firms across the software and computing
services industry used these opportunities to market their
products and services. During 1999 and 2000, numerous
ASP trade fairs were held internationally, which enabled the
collection of data on many firms. Additional sources of data
collection for the ASP database comprised: company web
sites, sales and marketing literature, membership organiza-
tions,4 business and computer press articles, press releases;
email contact, etc.). This data served to build-up a ‘data-
bank’ of market intelligence on a variety of ASP firms and
their offerings. Many of these firms were tracked over a 4-
year period to identify changes in their business models.
 Customer evaluation of application services
From a sample of 700 ASP, 424 of which were applications
providers (which excludes infrastructure providers), as
many as 197 ceased to exist, with a further 40 being taken
over (acquired) by another firm. From the remaining 187
ASP firms remaining, many had changed their business
model, moving away from software-as-a-service into data
storage and managed services provisioning. The ASP
database was a useful source of market intelligence for
the research study, since it helped to refine the five KPAs
from which a questionnaire survey was designed.
Questionnaire survey
A questionnaire survey was designed to elicit data and
information from existing and potential ASP customers,5 in
SMBs ranging from 5 to 500 employees. Five industrial
sectors were examined: finance, information technology,
manufacturing, healthcare and travel. The questionnaire
survey used five KPAs: delivery and enablement; manage-
ment and operations; integration; client/vendor partner-
ships and business transformation. As stated above, the
KPAs originated from pilot study research to elicit data and
information on the value proposition from the ASP
business model, largely from a vendor perspective. Caution
was necessary given that vendor sales and marketing
literature about the sources of value creation from the
ASP business model tended to paint an optimistic picture of
the potential customer benefits. The questionnaire survey
was therefore designed to elicit their responses on the value
customers attached to the ASP business model.
Having identified the five KPAs, the next step was to
deconstruct each one into specific key performance
indicators (KPIs). For example, within the category delivery
and enablement, KPIs included: 24  7 availability; data
security and integrity; ability to scale to reasonable
numbers and speed to market. Respondents were asked to
evaluate the importance of these KPIs on a 0–4 scale
(0 ¼ not important; 1 ¼ not important; 2 ¼ quite important;
3 ¼ very important; 4 ¼ critically important). For example,
many ASP vendors were claiming that customers demanded
24  7 software applications availability. Yet anecdotal
accounts did not support this claim (Currie, 2002). The
questionnaire survey would therefore offer potential and
existing ASP customers the opportunity to evaluate this
(and other) KPIs against their own business priorities.
The data collection method of attending trade fairs
targeted at the five industrial sectors, proved to be fruitful,
since respondents could clarify the meaning of specific
terms relating to each question. Although the questionnaire
survey comprised closed questions, some instances
emerged where respondents needed to clarify the meaning
of specific terminology, for example, data security; 24  7;
and integration. In all, 215 usable questionnaires were
obtained from the various visits to UK venues over a 9-
month period (beween June 2002 to February 2003). Only
14 per cent of respondents claimed to be using an ASP
solution. The possibility for finding few customers was
anticipated in the research design, particularly as the ASP
database (described above) found relatively few customer
reference sites. This was reinforced by monitoring ASP
membership sites, with few reporting successful ASP take-
up among customers.
WL Currie et al
45
The results of the questionnaire survey provided a basis
for comparison with ASP marketing and sales literature and
customer perceptions from the ASP business model. This
would identify a potential mismatch between the hype
surrounding the ASP business model6 and customer
requirements. The exercise of deconstructing the ASP
business model into KPAs was intended to provide a more
rigorous approach to understanding how performance can
lead to value creation for the customer (Neely, 2002).
Sources of value creation from the ASP business model
One of the most important lessons from the first wave of
the ASP market was the apparent difficulty of ASPs to
create value for the customer. This resulted in the demise of
numerous ASPs across all types (Hagel, 2002) and reflected
the downturn in the e-business market more generally
(Chatterjee et al., 2002; Kauffman and Wang, 2001; Ross
et al., 2001). Prior research identified five KPAs that are
potential sources of value creation from the ASP business
model: delivery and enablement, management and opera-
tions, integration, client/vendor alliances/partnerships, and
business transformation. These categories were modified
from those adopted by the ASP Industry Consortium,7
which used them to judge how well ASPs served their
customers. Each category is discussed below.
Delivery and enablement
The term ‘delivery and enablement’ refers to how ASPs
deploy their web-enabled software applications to custo-
mers. A commonly used sales pitch on the part of ASPs was
to offer 24  7 software applications availability, though
customers requirements varied according to the nature of
the business use. For example, an ASP serving the
education sector delivering applications to schools was
unlikely to find a customer requirement for continuous
availability of service, whereas a commercial firm was likely
to demand 24  7 for a trading system operating within a
global market. ASP firms, such as Cable & Wireless a-
Services,8 set out to become a full service provider (FSP),
offering a one-stop-shop to customers with a portfolio of
applications from simple collaboration tools (email and
calendaring) to complex ERP, CRM and supply chain
management. Numerous other ASPs embarked upon the
same path, yet found that the one-to-many9 approach was
simply the same-for-all, as potential customers demanded
some level of customization. ASPs resisted this demand, as
customisation would lead to reduced profits, or even a
financial loss. The ability to offer scalability of the software
application was another facet of delivery and enablement.
Generally, the less complex the application, the easer it was
to scale to high numbers. To a large extent, email was the
easiest application to offer, as there was no need for
customisation. Simple travel and expenses applications
were also popular. From the data analysis, the largest single
issue in terms of delivery and enablement was the fear
about data security and integrity. While IT infrastructure
providers such as Cable & Wireless, BT Exact, and others,
possessed large IT capability in the form of data centres,
many pure-play ASPs outsourced this facility. Yet, security
of customer data was a serious impediment, as many
potential customers were reluctant to experiment with an
 Customer evaluation of application services
46
ASP business model, which was immature and poorly
supported by customer reference sites.
Pilot interviews at customer sites (see Appendix A) found
that delivery and enablement was a high priority compared
with the other KPAs. For example, an IT manager (Football
Club) said,
At peak times, we sometimes experience problems with
speed. This may be due to the amount of the workload
the servers at the ASP end have to do. Another reason
may be due to the old network that we have internally.
However, since we upgraded the internal network it has
improved many things.
This manager continued,
Even if we have the system in-house, we can’t expect
100% performance. There is a point up to which we can
be satisfied and I think we are quite happy with the
current performance. Because we have considerably
sufficient bandwidth, the performance issue may be
related to our slow internal network or the servers at the
ASP end.
Although many ASP vendors highlighted the advantages
of 24  7, customers found that always-on performance was
inextricably linked to their own IT infrastructure capabil-
ities. Yet not all potential and existing customers were
aware of these delivery and enablement shortcomings in the
first instance.
Management and operations
One of the perceived benefits of the ASP business model
was that customers would be able to concentrate on their
core competencies. ASP vendors argued that the remote
delivery of software applications would release managers
from the perennial problems of running in-house IT
departments. This would allow them more time to develop
IT and e-business strategy rather than the day-to-day
operations. This justification has been used in traditional
forms of outsourcing over many years (Willcocks and
Lacity, 1998). The potential for allowing managers to
concentrate on their core activities largely depended upon
what was being outsourced. Our findings suggest that most
of the software applications offered by ASPs were loosely
defined as horizontal, business applications (i.e. account-
ing, HR, fixed asset management software, etc.). Even where
customers were deploying the ASP model for more complex
applications, there was little evidence that the scale and
scope of usage amounted to extra time for managers to
engage in other activities. Other benefits to firms were
defined in terms of cost savings. Many ASPs used TCO
models to show how IT costs would be reduced using a
remote software delivery model. Our findings pointed to a
lack of relevance in TCO models, particularly for the SMB
with low IT budgets. One SMB manager said,
Our overall IT spend is only about d50 k per annum. I
don’t think using an ASP solution will necessarily save us
much money. But if it means less headaches with using
IT, then I think I would be prepared to pay more for
ASP!.
WL Currie et al
Another benefit of the ASP business model for firms
was flexibility and agility. Yet the largely undifferentiated
offerings of ASP firms meant that improvements in
management and operations from more time to
focus on core competencies, cost reduction, and
enhanced flexibility and agility suggested that the ASP
business model had made little impact across customer
IT departments.
Integration
One area where the ASP business model could potentially
make a significant difference was integration of software
applications across multiple platforms, sites and depart-
ments of customer firms. A commonly sited benefit from
ASP firms was that software applications across business
and IT functions could be integrated to fulfil the goal of
enterprise application integration (EAI). Many ASPs, such
as Cable & Wireless a-Servicest; J.D.Edwards; Corio;
Aristasoft; and Futurelink, planned to develop a wide
portfolio of business applications (including ERP, CRM,
sales force automation, accounting and financials, logistics,
etc.), which could eventually be integrated to provide the
customer with a comprehensive enterprise solution. The
resultant synergy from a combination of applications would
create a more streamlined and effective business and IT
infrastructure for better manageability. For example, the
benefits from integrated billing information would improve
the auditing and reporting procedures in customer firms.
Additional benefits were faster software application im-
plementation and the opportunity for SMBs to acquire
‘best-in-class’ enterprise software. Our findings suggest that
the ASP rhetoric was somewhat at odds with the reality,
since the requirement for integration remained strong in
large customer firms, but less so in SMBs. The large ISVs
offering ERP and CRM suites all found that SMBs were not
convinced of the benefits of integrating their software
applications, unless this could be done without a large
financial investment. Offering enterprise solutions to SMBs
with traditionally low capital expenditure in IT capability
was not a viable business proposition. This problem was
also experienced by many other ASPs offering enterprise
solutions; especially those which partnered with large ISVs.
Enterprise software developed in client server technology
was also largely unsuited for delivery over the Internet.
Whilst this offered a new opportunity for start-up or pure-
play ASPs, which had developed a web-enabled solution
(Netledger; e-Carisma); SMBs were reluctant to replace
existing software applications they considered were reliable.
Our findings showed that a potential customer already
using an accounting package from a leading ISV was
unlikely to see additional benefits from deploying the same
application on a remote delivery model. Nor could they see
any real benefit from integrating the application with their
other business applications.
Interviews with SMBs found that integration of software
applications was not an immediate priority, or rather, not a
priority they were prepared to pay for. The majority of SMB
customers were deploying ASP solutions which were non-
mission critical, e.g. email, rather than ERP. One customer
firm, using an expenses application said,
 Customer evaluation of application services
We did not particularly look for an ASP solution.
However, we came across a vendor, which had a product
for expenses. The main advantage of this is that you can
prepare your expense claims from a remote location and
submit the data to head office. It is particularly useful for
staff working away from the office for long periods.
Client vendor alliances/partnerships
The ASP business model was premised on the formation of
strategic alliances and partnerships with technology and
service providers (Tebboune et al., 2003). Telecommunica-
tions firms entering the ASP market with large IT
infrastructures needed to partner with ISVs and hardware
manufacturers. One of the significant strategic alliances was
between Cable & Wireless (IT infrastructure), Compaq
(hardware manufacturer); and Microsoft (ISV). Pure-play
ASPs without a large investment in IT infrastructure needed
to form strategic alliances with data centre and co-locator
firms (telcos) and ISVs. Our findings suggest that the
alliances and partnerships that were critical to the ASP
business model tended to increase the complexity of what
was intended to be a simple customer solution. For
example, ASPs forming partnerships with hardware man-
ufacturers and ISVs needed to negotiate a pricing model
which would benefit all parties. In many cases, ISVs
complained that start-up ASPs were keen to offer their
software on a hosted model, but revenues from sales of the
software would only be generated once the ASP was
delivering it to customers. In one case, an ISV said that
six ASPs had approached the firm to host their software,
yet none wanted to pay for the licences until they
had developed the channel to market. This posed
additional risks to the ISV, which meant that product
and intellectual property was entrusted to an ASP
prior to generating a revenue stream. Start-up ASPs were
unable to pay for software licenses up-front without
guaranteed sales, and ISVs were reluctant to partner
with ASPs that had not found new customers. These factors
led to a stalemate.
It is often claimed in the outsourcing literature that a
service level agreement (SLA) is the foundation of a
successful outsourcing relationship (Currie and Willcocks,
1998). Yet SLAs offered little protection for partners and
customers of ASPs, which were vulnerable in a high velocity
and dynamic market (Eisenhardt and Martin, 2000).
Interviews at two customer sites found that, as a result of
the ASP going out of business, the software application had
to be managed in-house. Both customers lost time and
money in resolving the problem and were therefore less
likely to use an ASP in the future. While predicting the
financial stability and viability of a pure-play ASP is
difficult to do in an unpredictable market; the degree of
commitment to a strategic alliance or partnership from a
large technology provider or ISV is equally problematic.
Our findings suggested that even where large firms (telcos,
ISVs, hardware manufacturers, etc.) entered into a strategic
alliance with ASPs, this was easily unravelled if the business
objectives were not achieved within a specific time period.
As greater numbers of ASPs failed, ASP adoption rates
became fewer, as surviving vendors could not convince
potential customers that the ASP business model offered
WL Currie et al
47
them new benefits for outsourcing their business software
applications.
Business transformation
A more nebulous aspect to the ASP business model was
business transformation. With the growth in information
and communications technologies (ICTs), customers were
faced with a confusing array of software applications from a
variety of ASP vendors. The business transformational
characteristics of different offerings were not well articu-
lated by ASP vendors, as many were unable to provide
practical examples of performance improvement in specific
business/technology activities or tasks. Many ASP vendors
claimed the ASP business model would integrate ICT with
the core business of the customer. Also, using an ASP
solution would help the customer keep pace with the latest
ICT and give them all the benefits of outsourcing, which
had previously accrued only to large firms. Senior
managers from the business would also see the advantages
in the ASP business model, and this would result in
increased IT budgets. Our research findings suggest that
whilst SMBs were aware of the theoretical benefits of e-
business, where the ASP business model was a sub-set; they
were unable to relate these benefits to their day-to-day
practical business operations. Many SMBs simply described
the ASP business model as ‘a return to service bureaus
under a different name’, rather than an ICT innovation
which would enhance their business. The business trans-
formational characteristics of the majority of ASP offerings
were also low, as this was dependent upon integration. Our
research found that most customers used only simple ASP
offerings like travel and expenses. SMB customers did not
deploy software applications for business critical activities,
and many were reluctant to do so because of fears of data
security.
Results from the questionnaire survey
Against the background of the five KPAs discussed in the
previous section, the questionnaire survey was developed to
elicit data and information on how potential and existing
ASP customers evaluate a range of KPIs in relation to their
own business requirements. Using a scale of 0–4 (0 ¼ not/
applicable; 1 ¼ not important; 2 ¼ quite important; 3 ¼ very
important; 4 ¼ critically important). Respondents were
asked to rank each KPI across the five KPAs. The
questionnaire survey instrument is reproduced in Appen-
dix B. It is outside the scope of the present paper to discuss
all the findings from the questionnaire survey, particularly
the sample firms’ previous outsourcing experience.
All respondents gave their job title, company address and
other details about product/service offerings and size of
company. All the firms were SMBs (up to 500 employees).
All respondents occupied positions where they had some
responsibility for procuring software applications for their
firms or organizations. For example, the trade fairs
attended in the health sector aimed to sell the latest IT
products and services to healthcare managers and profes-
sionals. Many ASPs therefore targeted specific vertical
sectors such as health to enable them to penetrate this
market more successfully, as general e-business trade fairs
were unlikely to attract healthcare personnel.
 Customer evaluation of application services
48
The five industrial sectors were initially selected for their
apparent differences, not least in terms of the types of
customers they served, but also for their relative maturity
or immaturity as purchasers of information technology
(software applications) and experience of IT outsourcing.
For example, whilst the finance sector has the largest IT
spend of all industrial/commercial sectors and possibly the
most experience of IT outsourcing; the travel sector, by
comparison, is relatively immature, especially in terms of
IT outsourcing. The questionnaire survey would therefore
provide a snapshot of the priorities attached to the various
KPIs across the five industrial sectors.
Despite the limitations from using questionnaire surveys,
the results from the ASP customer evaluation questionnaire
survey outlined in Table 3 reveal some interesting details
about the perceptions of respondents’ about ASPs. The
number/percentage of useable questionnaires is highest
among finance and technology sectors (i.e. N ¼ 47 and 52,
respectively) compared with manufacturing, health and
travel (i.e. N ¼ 36, 43, 37), although the lower numbers are
still sufficient to provide a snapshot of how these individual
sectors perceive the ASP solution.
KPI priorities
By far the most important KPI in relation to the KPA of
delivery and enablement was data security and integrity
(scoring 3.43 across the five industrial sectors). This finding
was unsurprising given the fears potential customers voiced
about adopting the ASP business model. One respondent in
the finance sector claimed,
My firm would never use an ASP because our data is
king. We would be too worried about data infringement
or contamination. If the data got into the hands of a
competitor, this could be a serious problem for us. I am
therefore not convinced that the ASP model will ever
work for this reason’.
By contrast, data security and integrity was of less concern
in the travel sector (scoring only 2.77) against the financial
sector (scoring 3.67). The travel sector appeared to provide
much opportunity for ASPs given the growing demand for
customers to book their travel on-line. Travel agents were
therefore less concerned about the criticality of data
security and integrity and more concerned about KPIs
such as 24  7 software applications availability (scoring
3.09) and speed to market (scoring 3). Other variations in
priorities emerged. For example, while the health sector
shared similar concerns with the other sectors (apart from
travel) in giving a high priority to data security and
integrity, it also identified allowing managers to concentrate
on their ‘core’ competencies as an important KPI. This may
reflect the significant changes within the health sector
marked by increased paperwork and other forms of
bureaucracy. Using an ASP model was therefore perceived
as having some advantages in this activity.
Another KPI given relative high priority in the finance
sector was delivery of an end-to-end solution. One of the
significant changes within the finance sector has been the
proliferation of new products and services (e.g. pensions,
mortgages; savings accounts, interest rate variations
between accounts, loans, etc.) often resulting in customer
WL Currie et al
confusion. So the delivery of end-to-end solutions would
possibly help to resolve this problem. One notable example
is on-line banking where customers can execute a number
of tasks at once (e.g. check their bank balance, transfer
money to another account, pay bills, and set up direct
debits, etc.).
The integration of ICT with the core business was
highlighted by finance and health as important, but less
so for the other three sectors. In healthcare, in particular,
the lack of integration of ICT has resulted in numerous
disparate software applications, although efforts are now in
place to devise a national IT strategy for healthcare (Guah
and Currie, 2002). An interesting finding was that a
strategic plan to increase IT outsourcing was given relatively
low priority in all sectors (apart from health). Whereas the
health sector was likely to increase its IT outsourcing as a
result of a national IT strategy, the other sectors did not
perceive this KPI as a high priority. Within the sectors,
finance, IT, and manufacturing, IT outsourcing is now
relatively mature, as opposed to travel. Within the area,
business transformation, only two KPIs: to integrate IT with
the core business (finance and health) and to gain senior
management support for IT (health) scored higher than 3.
In the case of the latter, it is not surprising that the
centralised nature of IT procurement in healthcare
precludes IT vendors from gaining access to key personnel
(Guah and Currie, 2002).
One of the surprising findings from the questionnaire
survey in relation to the ASP vendor rhetoric was in the
area of integration. Contrary to ASP sales and marketing
literature which emphasises the importance of integration
(particularly enterprise application integration – EAI), no
respondents in the sample scored higher then 3 for any KPI
within this category. For example, the finance and IT
sectors ranked integration of software applications across
multiple platforms, sites and environments as 2.67 and 2.62,
respectively. Manufacturing and health both scored only 2,
and travel, 2.55. Part of the reason for the relatively low
scoring for this KPI may be that respondents are aware that
few ASPs can deliver on integration. This finding reinforces
a recent study on customer satisfaction from ASPs (Susarla
et al., 2003). Another explanation is that the SMB sample
did not see integration as their main priority for the ASP
business model, especially if the ASP solution was non-
mission critical, undifferentiated applications (i.e. e-mail).
Another interesting finding was in the KPA of manage-
ment and operations. Despite the rhetoric or ASPs that
SMBs with to reduce their TCO of IT, only finance ranked
this KPI highly (3). Since the IT spend is very high in the
finance sector, this finding is unsurprising. However, none
of the other sectors saw the reduction in TCO as a major
priority.
In the KPA, client/vendor relationships, the health sector
reported that having a single point of contact (3.57) and
responsiveness of vendor to ICT changes (3.57) were highly
important. Again, the disparate IT systems across the UK
health sector has meant that IT managers are often faced
with a confusing array of software vendors, with several
points of contact and poor response times (Currie and
Guah, 2003). These concerns were of major importance to
health managers, along with the strength of partnerships
between vendors (3) and having a good SLA (3.71).
 Customer evaluation of application services WL Currie et al
49

Table 3 Results from the ASP customer evaluation questionnaire survey

Key performance Total Standard Finance IT (N ¼ 52) Manufacturing Health Travel

indicators average deviation s (N ¼ 47) (N ¼ 36) (N ¼ 43) (N ¼ 37)
score for all
firms (%)
(N ¼ 215)
Delivery and
enablement
24  7 software 2.69 0.98 2.44 2.94 2.7 2.29 3.09
applications
availability
Delivery of end-to-end 2.62 0.96 3 2.73 2.4 2.57 2.39
solution
Ability to scale (to 2.61 1.07 3.22 2.9 2.5 2.57 1.86
reasonable numbers)
Ability to migrate 2.76 1.02 3.33 2.83 2.6 3.14 1.93
existing data
Data security and 3.33 0.89 3.67 3.45 3.7 3.57 2.77
integrity
Disaster recovery, 3.28 0.84 3.44 3.24 3.5 3.57 2.66
back-up and restore
procedures
Plan to access all 2.20 0.91 2.11 2.3 1.8 2.57 2.23
software applications
on-line
Speed to market 2.53 0.87 2.67 2.55 2.3 2.14 3

Integration
Integration of s/w 2.37 0.71 2.67 2.62 2 2 2.55
applications across
multiple platforms,
sites, and
environments
Business process re- 2.10 0.84 1.78 2.18 2.3 2 2.16
design through s/w
applications
integration
To create a ‘seamless’ 2.30 0.68 2 2.49 2.4 2.57 2.02
IT organisation
Integration of billing 2.29 0.74 2 2.37 2.4 2.14 2.55
information into
auditing and reporting
systems
To create an IT 2.42 0.70 2.33 2.63 2.1 2.86 2.16
infrastructure for
better manageability
To achieve faster 2.41 0.89 2.56 2.65 2.7 2.14 2
software application
implementation
Resultant synergy 2.10 0.72 2.22 2.34 2.2 1.86 1.86
from combination of
applications

Management and operations

To allow management 2.85 0.92 3.22 2.88 2.7 3.14 2.32
to concentrate on
‘core’ activities
To reduce total cost of 2.64 1.09 3 2.77 2.9 2.71 1.82
ownership (TCO)
through s/w
applications
outsourcing
 Customer evaluation of application services WL Currie et al
50

Table 3 (Continued)

Key performance Total Standard Finance IT (N ¼ 52) Manufacturing Health Travel

indicators average deviation s (N ¼ 47) (N ¼ 36) (N ¼ 43) (N ¼ 37)
score for all
firms (%)
(N ¼ 215)
To eliminate the 2.35 0.78 2.11 2.39 2.5 2.57 2.2
problem of managing
IT
To gain access to 2.32 0.87 2.22 2.52 2 2.86 1.98
scarce IT skills
To achieve greater 2.30 0.71 2.67 2.3 2.4 2.29 1.84
‘visibility’ of IT costs
To pursue e-business 2.0 0.81 2.11 2.34 1.8 1.57 2.11
strategy
Improvements in 2.79 0.90 3.22 2.95 2.8 2.29 2.7
customer service
External (hosted) 2.25 0.83 2.56 2.65 2.2 2.14 1.7
applications
infrastructure better
value for money
External (hosted) s/w 2.07 0.85 2.33 2.31 2 2 1.75
applications
infrastructure more
cost effective than
traditional outsourcing
Greater flexibility of 2.06 0.91 2.22 2.42 2.2 1.71 1.77
outsourcing as
opposed to in-house
mgt of software
applications

Business transformation
To keep pace with the 2.31 1.01 2.33 2.66 2.6 1.57 2.43
latest information and
communications
technologies (ICTs)
To integrate ICT with 2.65 1.02 3.22 2.73 2.1 3.14 2.07
the core business
To treat ICT as a 1.96 0.98 2 2.2 1.9 2.14 1.59
service to the core
business only
Strategic plan to 1.79 0.78 1.89 1.73 1.6 2.14 1.59
increase ICT
outsourcing
To gain senior 2.27 1.09 2.33 2.07 2.1 3.29 1.59
management support
for ICT

Client/Vendor Relationships
Desire to develop 1.97 0.71 2.11 2.48 1.8 1.86 1.64
strategic partnerships
with vendors
Outsourcing success 3.04 0.98 3.11 3.06 2.8 3.71 2.55
depends on good
service level agreement
(SLA)
Financial stability of 2.93 1.04 3.22 2.98 2.9 3.43 2.16
vendor critical to
outsourcing decision
 Customer evaluation of application services WL Currie et al
51

Table 3 (Continued)

Key performance Total Standard Finance IT (N ¼ 52) Manufacturing Health Travel

indicators average deviation s (N ¼ 47) (N ¼ 36) (N ¼ 43) (N ¼ 37)
score for all
firms (%)
(N ¼ 215)

Single point of contact 2.71 0.92 2.44 2.71 2.7 3.57 2.14
(with Vendor)
Responsiveness of 2.61 1.12 2.78 2.76 2.4 3.57 1.55
vendor to ICT changes
The strength of the 2.42 0.81 2.67 2.52 2.2 3 1.73
strategic partnerships
between vendors
Mergers/acquisitions/ 2.14 0.81 2.11 2.05 2 2.86 1.68
takeovers between
vendors
Market turbulence and 2.31 0.90 2.78 2.38 2.3 2.29 1.82
uncertainty

Total score in this 92.89 98.09 98.08 90.5 97.84 79.96

section

Summary of findings
Despite a relatively low survey sample (215 firms), the
findings suggest some variation in customer priorities and
performance requirements from using an ASP both within
and across industrial sectors. Despite the tendency of ASP
vendors to treat customers as a single entity, with similar
concerns (Kern et al., 2002a, b; Currie et al., 2003), the
questionnaire findings and customer interviews pointed up
the need for ASP vendors to understand the specific rather
than general business and technology needs of customers.
As the findings suggest, customer requirements varied
across the five KPAs and KPIs. Although data security and
integrity was highly important to most customers, other
delivery and enablement KPIs were not considered
important.
While simple, undifferentiated commodity ASP
solutions could be adopted by customers using standard
SLA terms and conditions, complexities were likely to be
compounded with more sophisticated, mission-critical
systems, such as ERP where more detailed SLAs are needed
(see Papaioannou et al., 2002). Although outsourcing
success was viewed as being dependent upon a good SLA,
interviews with customer firms suggested that few formal
selection and evaluation procedures were in place for
deploying an ASP solution, particularly in small firms
(Ekanayaka et al., 2002). Indeed, the KPI, strategic plan
to increase ICT outsourcing, was not seen as an important
priority by sample firms and gaining senior management
support for ICT was only considered a priority in
healthcare organizations. It is therefore suggested that,
without these two KPIs being perceived as highly im-
portant, the responsibility for negotiating SLAs is likely to
be delegated to more junior management and IT staff,
possibly increasing risk. This observation has already been
made in the outsourcing literature (Willcocks and Lacity,
1998).
The questionnaire survey was conducted at the end of the
first wave of the ASP market (during 2002), and found very
few ASP customers (only 14 per cent from a sample of 215
firms). Most SMBs remained unconvinced that the ASP
business model could create value for their own business.
Despite extensive sales and marketing literature from ASPs,
exclaiming the benefits of the ASP business model, some of
which simply adding to customer confusion (Kern et al.,
2002a, b), specific KPIs were not given a high priority
across the five vertical sectors. For example, 24  7 software
applications availability; ability to scale to reasonable
numbers; plan to access software applications on-line;
integration of software applications across multiple plat-
forms, sites and environments; to allow management to
concentrate on ‘core’ activities; reductions in TCO; strategic
plan to increase IT outsourcing, and single point of contact
with vendor, comprised some of the more notable KPIs in
the sales and marketing literature from ASPs. The results
pointed to relatively low scoring for these KPIs, suggesting
that ASP vendors had possibly mis-interpreted the needs of
potential customers, or more importantly, the SMB
customer. Clearly, most of the sales and marketing rhetoric
of ASP vendors appeared to echo the messages given to the
large customer. Questions therefore arise as to the extent
these messages were relevant for SMBs. In particular, that
an SMB would reduce its TCO of IT using an ASP solution
despite a low annual IT spend, or that efficiency would be
greatly improved with 24  7 software availability (this
message was targeted at schools and colleges by some
ASPs). Some of these themes are revisited in the next
section.
Discussion and conclusion
This paper set out to answer a broadly defined research
question: How do ASP firms create value for their customers
from their ASP business models in relation to the attributes
of strategic positioning, product/service portfolio and value
proposition?
 Customer evaluation of application services
52
This question is relevant to the ASP business model, but
can be applied to e-business, more generally (Amit and
Zott, 2001; Weill and Vitale, 2001). The questionnaire
survey provides an interesting snapshot of the priorities
attached to different KPAs from potential and existing ASP
customers across five vertical sectors. While it is not
possible to draw definitive conclusions from the results, the
variations in the priorities within and across the KPAs by
the five vertical sectors points up some interesting
observations. The results discussed in this paper are
indicative of the problems, which beset the first wave of
the ASP market, most notably, a failure of ASP vendors to
provide an attractive value proposition to SMBs (Hagel,
2002).
During 2002, when the questionnaire survey was
conducted, the ASP industry was in freefall. Only 14 per
cent of the sample firms had adopted an ASP solution, with
the remaining 86 per cent unconvinced about the value
proposition of ASPs in relation to their own business.
Numerous ASPs had already gone out of business and those
that were left were largely struggling to survive. At the time
of writing, many ASPs are now moving into other areas,
such as Web services and application infrastructure
provision. In recent months, the ASP business model is
served by vendor firms falling into two distinct categories10
– Service Providers and Software Infrastructure Providers.
The former comprise mainly pure-play ASPs which develop
Internet applications (i.e. Salesforce.com and Netledger).
The latter comprise firms that enable the ASP solution,
such as ISVs and infrastructure providers (i.e. Hewlett
Packard, Peoplesoft and Sun Microsystems).
While the ASP market continues to undergo a large-scale
change, which is a symptom of competing in a highly
volatile and dynamic market place (Eisenhardt and Martin,
2000), the main finding from the research study has been
the failure of vendors to create value for potential and some
existing customers. By delineating KPIs across five KPAs,
the results from the questionnaire survey point up some
interesting findings, which provide a snapshot of how
potential and existing customers of ASPs evaluate the ASP
or software-as-a-service model. Further research is now
underway to provide more detailed vendor and customer
scenarios across vertical sectors (i.e. health and finance)
and product/services offerings (i.e. ERP) to provide specific
examples of how vendors may tailor their offerings to more
closely meet the needs of customers. This is particularly
important given the current cynicism and myths surround-
ing the business value of e-business (Howcroft, 2001).
One of the serious pitfalls of the first phase of ASP
business model was that, despite the apparent variety
(taxonomy) of ASP vendors, their ability to offer a one-to-
many model to customers was instead, the same-for-all
(Currie, 2003; Hagel, 2002). Even within vertical sectors,
ASPs attempted to resell software applications into the SMB
market. Yet the complexity of ERP systems, even vanilla
ERP proved difficult to sell into SMBs. On the contrary,
collaboration tools such as email, provided a simple ASP
offering, but the undifferentiated nature of this product/
service was not enough to convince SMBs there was any real
business value to be gained through a rental model. This
suggested that ASPs could only achieve superior perfor-
mance if they provided a product/service, which was
WL Currie et al
unique; if they did something no other business does, in
ways that no other business can duplicate (Magretta, 2001).
Only a few examples of superior performance emerged
from the first wave of the ASP market, with most of them
confined to large firms as opposed to SMBs.
More recently, the concept of ASP has given way to
software-as-a-service with the term, utility computing
implying new pricing models for software products/
services. Since the technology (infrastructure and applica-
tions) behind utility computing or on-demand IT services is
still emerging, it is likely that SMBs will continue to be
cautious about the ASP or software-as-a-service business
model. ASP vendors (however they describe themselves in
the future) will need to strategically differentiate themselves
from their competitors to gain traction in the market
(Currie, 2003). They will only achieve this by developing a
product/service portfolio and a value proposition, which is
attractive to customers (Susarla et al., 2003), recognising
that different customers have individual business needs
both within and across industrial and size categories.
Currently, Web services appear to offer some of the
remedies for resolving the problems which beset the first
phase of the ASP market, by focusing upon the delivery of
network based solutions which may be integrated across
other applications (Currie et al., 2003). But the medium or
long-term survival of these vendors will be determined by
their ability to develop and sustain revenue streams from
customers who perceive real value from adopting an
applications outsourcing strategy. What is certain is that,
revenue generation across all ASP business models has
proven more difficult than expected, with the ASP fallout
having wider implications for vendors and customers.
While this paper offers a template for evaluating business
value from the ASP solution, more in-depth case-based
research is required which maps customer requirements to
vendor offerings as the one-size-fits-all approach by many
ASP firms has proven counter-productive, as the business
and technology solutions of SMBs can be just as complex as
in large firms.
Acknowledgements
We thank the Engineering and Physical Sciences Research Council
(EPSRC) for providing research funding to investigate ‘Assessing
the benefits and risks of business critical information systems
using application services providers; and the Economic and
Social Research Council (ESRC) for funding, ‘A study on vertical
and horizontal ASP business models’. In addition, we offer our
thanks to the numerous firms who completed our questionnaire
survey and the case study firms. We also thank the Associate
Editor for providing useful advice and guidance on improving
the paper.
About the Authors
Wendy Currie is Professor of Information Systems at
Warwick Business School, University of Warwick, UK. She
currently manages research grants from the European
Union, Engineering and Physical Research Council and
Economic and Social Research Council. Her research
interests are management strategy for information systems,
e-business models, and IS outsourcing policy and practice.
Her recent books include ‘The global Information society’
 Customer evaluation of application services
(Wiley), ‘New strategies in IT outsourcing in the US and
Europe’, Business Intelligence Ltd, and ‘Rethinking MIS’
(with Prof. Bob Galliers) published by Oxford University
Press. She has published in numerous journals including
OMEGA, British Journal of Management, European Journal
of Information Systems, Journal of Information Technology,
Long Range Planning, and others. She is an Associate
Editor for Management Information Systems Quarterly,
and on the editorial boards of Journal of Strategic
Information Systems, Journal of Information Technology,
Journal of Logistics and Information Management,
and Journal of Change Management. She is a member
of the US Association for Information Systems (AIS) and
the UK AIS.
Bhavini Desai is a Research Assistant and PhD candidate
employed on an ESRC-funded project, ‘A study on vertical
and horizontal ASP business models’. She has presented her
work at international conferences: Hawaii Conference on
Systems Sciences, International Conference on Electronic
Commerce, and the Americas Conference on Information
Systems. Her doctoral work is on e-business model agility.
Naureen Khan is a Research Assistant and PhD candidate
employed on an EPSRC-funded project, ‘Assessing the
benefits and risks of business critical information systems
using application services providers’. She has presented her
work at international conferences: Hawaii Conference on
Systems Sciences, European Conference on Information
Systems, and the Americas Conference on Information
Systems. Her doctoral work is on business value from
offshore outsourcing.
Notes
1 These authors deconstruct e-business models in an attempt to
delineate their different attributes and value-creating potential
for customers. The eight atomic e-business models are: direct
to customer; full service provider; intermediary; shared
infrastructure; value net integrator; virtual community; and
whole-of-enterprise/government (see Weill and Vitale, 2001:
21).
2 Many horizontal ASPs (Salesforce.com; Netledger, etc) charged
in the region of $20–60 per month, per seat for their software
applications. Reliability, scalability and accessibility (RAS) is
therefore important in this market.
3 Research funding was obtained from the Engineering and
Physical Sciences Research Council (EPSRC) for a study on
‘Assessing the benefits and risks of business critical informa-
tion systems using application services providers; and from the
Economic and Social Research Council (ESRC) for ‘A study on
vertical and horizontal ASP business models’. Industrial
collaborators included: Cable & Wireless a-Servicest; Netstore
(a leading European ASP); Ernst & Young; ICI chemicals; KW
International; Keystar; Fullard Learning and DCS.com.
4 The ASP Industry Consortium was one of many membership
organizations designed to promote the ASP business model. This
was a useful website since it contained lists of many ASP firms.
5 The questionnaire survey was premised on the basis that many
SMB respondents were not currently using an ASP (or
outsourcing their IT), but were potential ASP customers. It
WL Currie et al
53
was therefore important to draw a comparison between
existing and potential ASP customers.
6 From 1999 to 2001, the hype surrounding e-business was echoed
by ASP vendors, many of whom produced expensive and glossy
marketing literature on a range of customer benefits from using
an ASP. These benefits (and risks) were captured in the
questionnaire survey, not to measure if they were being met, but
rather to ascertain whether they were important to customers.
7 The ASP Industry Consortium adopted only four categories:
Delivery; Integration; Management and Operations; and
Enablement. Pilot Research conducted in Silicon Valley
suggested that the categories of delivery and enablement
largely overlapped as enabling remote access to software
applications also included many delivery issues. For this study,
these categories are therefore merged. Additional categories
were also relevant, such as client/vendor alliances/partnerships
and business transformation.
8 Cable & Wireless a-Services was set up in November 1999 to
become a full service provider (FSP) with an initial offering of
collaboration tools (MS office and Exchange) moving onto
more complex business critical software such as ERP and
CRM. Failure to win customers resulted in its closure in
November 2001 with the loss of many jobs.
9 The one-to-many approach is where the same software
application is delivered to multiple customers/sites/depart-
ments. This enables the ASP to achieve economies of scale. For
example, Concur offers a travel and expenses package which
does not need to be customised. This ‘horizontal’ offering can
therefore be used across industry sectors and priced on a
subscription model.
10 aspnews.com provides monthly reports of the top 20
ASP providers and top 30 ASP Infrastructures. This is a
useful site for tracking the performance of firms within the
ASP industry.
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 Customer evaluation of application services WL Currie et al
55

Appendix A

ASP vendor firmsa

Company Location Type of company Role within the

(United States) ASP industry
1 JD.esourcing Denver, Col. ISV Enterprise
2 Corio Silicon Valley ASP Enterprise
3 Wyzdom.com San Francisco ASP Horizontal
4 Calico Silicon Valley ISV Horizontal
5 Aristasoft Silicon Valley ASP Vertical (manufacturing)
6 Velocity.com Silicon Valley ASP Vertical (healthcare)
7 Trizetto Silicon Valley ASP Vertical (healthcare)
8 Acceleratenow.com Silicon Valley ASP Pure-play
9 Digital Island San Francisco Internet connectivity Infrastructure
and co-location
10 Ensim Silicon Valley ASP Infrastructure
11 NTT Silicon Valley Telecommunications Infrastructure
12 Paradigm3 Silicon Valley ASP Infrastructure
13 Wyse Silicon Valley Hardware Infrastructure
14 Above Net Silicon Valley Internet connectivity Infrastructure
and co-location
15 Televideo Silicon Valley Hardware Infrastructure

Company Location Products and services Role within the

(United Kingdom) ASP industry
16 SAP London ISV Enterprise
17 Procession Berkshire ISV Horizontal
18 E-Carisma Berkshire ASP Horizontal
19 X4i London ASP Vertical (Freight)
20 KW International London ISV Vertical (Energy)
21 E&Y London Consultancy Vertical (Financial Services)
22 Keystar Berkshire Consultancy Vertical (Financial Services)
23 Vivao Berkshire, UK ASP Pure-Play
24 Netstore Berkshire ASP Pure-play
25 Aspective Hertfordshire ASP Pure-play
26 Citrix London Networking Infrastructure
27 Cable & Wireless London ASP Infrastructure
28 Compaq London Hardware Infrastructure
a
The interview schedule was between April 2000 and November 2000.

ASP customer firmsa

Company (UK) Location Type of company ASP solution

1 Avon Cosmetics London Beauty Products MS Office/Exchanget
2 London Borough of Enfield London Local Council ERP (Financials)
3 Satyam Europe Ltd Basingstoke IT vendor Accounting (expenses)
4 Seabrook International London Freight and Logistics MS Office/Exchanget
5 Simoco Digital Systems Cambridge Communications Accounting (expenses)
6 Watford FC Hertfordshire Football Club MS Office/Exchanget
7 Wolverhampton FC Wolverhampton Football Club MS Office/Exchanget
a
The interview schedule was between June 2001 and May 2002.
 Customer evaluation of application services WL Currie et al
56

Appendix B

ASP Customer Evaluation Questionnaire Organisational/managerial

1. Your Company
Strategy and planning
Project management
Name of company
Network management
Your name and position
Business processes (finance, HR, procurement)
Telephone number
Business sector
Support activities
Products and services
Call centre
Annual turnover
Help desk
Profit/loss for last financial year
E-mail
Number of employees
Disaster recovery
How old is the company
Web hosting
IPO (if yes, date)
Education and training

2. IT Outsourcing
3. ASP
Do you outsource all or part Yes No
of your information and
communications technology? 3.a. Have you heard of the term Yes No
Application Service Provider (ASP)?

2.1. What software applications do you outsource?

3.b. Do you use services of an ASP? Yes No
Yes No N/A
IT hardware
Mainframe 3.c. Do you currently purchase or would you consider
purchasing any of the following services from an ASP?
Networks (LAN, WAN, intranet)
Yes, Plan to purchase
Client/server No, within 12
Midrange N/A months time

Data centre E-commerce

ERP

Systems development CRM

Programming Data hosting

Systems analysis/specification Email

Systems architecture Web hosting

Systems integration Finance/payroll

Data analysis and modelling Asset management

Web site design Human resources

 Customer evaluation of application services WL Currie et al
57

Electronic Data interchange

Back office
Project management
Supply chain management
Other (please specify)

4. Performance Measurement

How important are the following Key Performance Indicators (KPIs) in evaluating the benefits and risks of software
applications (s/w) outsourcing?

Category Key Performance Indicator Not Quite Very Critically N/A 0

important important Important important
1 2 3 4
Delivery and 24  7 software applications availability
Enablement
Delivery of end-to-end solution
Ability to scale (to reasonable numbers)
Ability to migrate existing data
Data security and integrity
Disaster recovery, back-up and restore
procedures
Plan to access all software applications
on-line
Speed to market

Integration Integration of applications across

multiple platforms, sites and
environments
Business process re-design through
integration
To create a ‘seamless’ IT organisation
Integration of billing information into
auditing and reporting systems
To create an infrastructure for better
manageability
To achieve faster software application
implementation
Resultant synergy from combination of
applications
 Customer evaluation of application services WL Currie et al
58

Management To allow management to concentrate on

and Operations ‘core’ activities
To reduce total cost of ownership (TCO)
through outsourcing
To eliminate the problem of managing
IT
To gain access to scarce IT skills
To achieve greater ‘visibility’ of IT costs
To pursue e-business strategy
Improvements in customer service
External (hosted) applications
infrastructure better value for money
Rental model more cost-effective than
traditional licensing/maintenance model
for software applications
Greater flexibility of outsourcing as
opposed to in-house mgt of software
applications

Business To keep pace with the latest information

Transformation and communications technologies
To integrate IT with the core business
To treat IT as a service to the core
business only
Desire to increase IT outsourcing
To gain senior management support for
IT

Client/Vendor Desire to develop strategic partnerships

Relationships with vendors
Outsourcing success depends on good
service level agreement (SLA)
Financial stability of vendor critical to
outsourcing decision
Single point of contact (with Vendor)
Responsiveness of vendor to ICT
changes
The strength of the strategic
partnerships between vendors
Mergers/acquisitions/takeovers between
vendors
Market turbulence and uncertainty