Any executive who has gone through an ERP implementation knows about the trials and tribulations of breaking in a new information system. Treasury applications may not be as complex as ERP, but their adoption, maintenance, and protection involve a significant investment of money and resources.
In a weak economy, the costs of installing and operating such systems become even more onerous. One alternative is to hire an application service provider (ASP) to run the software on your behalf. With little or no upfront costs and a monthly service fee, the ASP option makes sophisticated software tools accessible to companies of all sizes. Brian Thompson, director of ASP services at SunGard Treasury Systems, the largest maker of treasury software in the industry, says that the deteriorating economy and a new awareness of the vulnerability of corporate data systems have prompted a surge in inquiries about his company's services. SunGard has signed up more than 25 clients for the ASP service within the last year.
Clients like the idea of low upfront costs, and they also appreciate the fact that the blame game between company, consultant, and software vendor is not an issue. "With ASPs, it's one neck and one noose," says Amy Mizoras, a program manager at technology consultant IDC. "If the service level isn't there, you don't pay."
One downside is that treasurers, who are controlling by nature, have to cede control of sensitive information to outsiders. Companies may also have to accommodate their processes to the software's capabilities, since applications offered by ASPs are typically less customizable than purchased systems.
But the biggest concern may be the financial viability of the ASP. To date, the growth of the ASP industry has been far weaker than anticipated, and many providers have been unable to achieve the economies of scale they need to survive. Pandesic, an ASP with substantial backing, went out of business last year. More recently, AristaSoft, a provider hosting applications for high-tech manufacturers, also bit the dust, and Exodus, which provides infrastructure to a number of ASPs, declared Chapter 11 bankruptcy. All eyes are now trained on USInternetworking, the largest ASP in the market based on customer spending. Its stock currently trades below $1 a share, and the company posted a net loss of $37.6 million in the third quarter. "If it fails, it's going to be bad for the industry," predicts Mizoras.
But different ASP business models abound. Alterna Technologies Group Inc., for example, develops its own software and also hosts it for some customers. "Third-party providers aren't a viable option," says Gonzalo Naranjo, CEO of the liquidity management software maker. "They don't own the intellectual property, so their margins are under greater pressure." Some third parties have fared well, but companies that want to preserve precious capital by opting for ASP-supplied treasury systems face a double dose of due diligence, since they must analyze the software and the company that provides it.