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MAY 16, 2000

A Low-Risk Strategy for Managing Tech Change

One-stop services are good in theory; now if they can only execute


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How do you tame the rapid change in technology that threatens to eat your company alive? It's a question that assaults every small-business owner today. Spending on technology alone reflects the scale of the challenge, soaring from $67 billion in 1995 to $85 billion last year. If a company with 20 to 49 employees, for example, wants to stay up to date, it will spend an average $88,000 a year on tech, a figure expected to rise at double-digit rates this year. What every entrepreneur wants to know is how to manage change coherently.

There are as many answers as experts. But one philosophy is expressed clearly in a series of familiar techno terms: plug-and-play, ease-of-use, point-and-click.

The latest claim for simplicityˇand limited riskˇcomes from a new generation of Internet-based companies known as application service providers, or ASPs. With many of them aiming at small business, ASPs offer a way to outsource key functionsˇfrom hiring and human resources to accounting, marketing, and supply-chain managementˇand to access them smoothly through the Web from any computer. While the idea is new (and the customers few,) it seems to have legs. Indeed, Forrester Research in Cambridge, Mass., predicts that the ASP market will top $6 billion by 2001.

An ASP can be attractive because few small businesses can afford to license and customize the huge application programs that large companies use to manage their accounting services and systems. Hardware and software can easily run more than $1 million. Then, the staff to operate it can rack up hundreds of thousands more. Moreover, it can take more than a year to get such a system up and running. And, in the fast paced world of e-commerce that can be far too long.

The rapid proliferation of ASPs in the past year gives small companies access to these complex applicationsˇusually for a monthly feeˇwithout having to own the infrastructure. Indeed, many ASPs say they can have a customer up and running on their system in a day. "Customers are coming to our service because they don't want to take the risk," says Mary Alice Lawless, CEO of ClickUpdate in Morristown, N.J. "All the debugging and integration issues are ours to contend withˇthe customers just want the benefits."

ClickUpdate, for example, was the among the first to provide clients with a single service to manage their catalogs and sales and promotion materials. The service consists of a suite of applications that allow companies to store all their marketing and promotional material, including graphics and video, and to easily customize it. Where companies used to rush printed sales pieces that were often generic to distant salesmen, they can now be quickly tailored for one-on-one selling and downloaded to a printer from any computerˇor sent directly to a printing plant.

Like other ASP execs, Lawless is painfully aware that holding onto her company's customersˇwhich include some giants such as Lucent Technologiesˇdepends on integrating the most advanced technology available into a stable, seamless Web portal. ClickUpdate constantly watches for new technology. When something comes along that seems to fit into the company's product framwork, ClickUpdate makes an initial assessment and then tests it.

Like its customers, ClickUpdate outsources noncore technology, such as printing that customers may need, to strategic partners. And the company is as demanding about the support it receives for software as the support that it provides. "We test the responsiveness of the vendor before we license products," she says, referring to the products that the ASP's users will access through her Web site. "If they can't jump through hoops for a prospective customer, it tells us we should not expect great support if we are a customer."

While ASPs are still in their infancy, the logic of one-stop shopping is already overtaking the market. The ASPs themselves are becoming integrated. CSPSource in New York, for instance, aims to make its Web portal the gateway to dozens of "best-of-class" services offered as a single service that it manages and maintains. That's the promise of simplicity, at least. Whether these companies will execute as well as they promise is another matter.

By Alan Hall


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