OPEN PLATFORM:

EDMS for Rent

By James K. Watson Jr. and Richard Medina

The application service provider (ASP) market is taking the IT world by storm. ASPs provide organizations with rentable applications that users can access via Web browsers. This approach keeps life simple for users, and it means that IT departments don’t need to maintain client software, application servers and infrastructures for the application.

It’s a new spin on the age-old outsourcing value proposition: offload operations that are not part of your core competency, and you’ll free up resources to focus on your business. One big difference we see is that organizations are now willing to outsource applications that are far more strategic than operational functions such as printing and payroll. Applications such as e-commerce, electronic billing and even accounting systems are all prime targets for outsourcing.

Another big difference we see is the simplicity of using the Web as a standard delivery mechanism and application platform. ASPs such as Corio and USinternetworking have built impressive businesses around the concept of providing customers with Web access to hosted applications.

If you doubt the momentum of the ASP trend, just look at the players that the market is attracting. For example, ERP vendors such as Oracle and SAP now act as ASPs while also partnering with other service providers. And Microsoft is partnering with USWeb/CKS to deliver applications over the Net. Such industry heavyweights are spending millions to build data centers and set up infrastructures to support hosted applications delivered over the Web.

While the high-profile ASP initiatives focus on ERP systems or Web hosting, there’s another application type that is prime for outsourcing: electronic document management. Vendors and service bureaus alike are making major investments in ASP and outsourcing services for document management, trying to capitalize on this fast-growing market.

The Bureau Approach

Basic document management and records management needs have always been fertile ground for service bureaus and other outsourcers. Operations such as scanning, backfile conversion and micrographics are routinely outsourced. In the records management space, companies such as Iron Mountain and Pierce Leahy have provided indexing and warehousing services for years.

But new IT systems create new demands for document management and records management. The volume of electronic documents that organizations must manage has exploded (especially e-mail), and the consequences of mismanaging these documents can be dire. At the same time, the knowledge management trend has helped most organizations realize the value of leveraging their documents and internal information as corporate assets, not just liabilities.

This creates an outsourcing opportunity for electronic repository management. A number of organizations are now providing electronic document management systems (EDMS) to customers on a time-share basis, using data centers to host their customers’ repositories.

Plenty of companies are already in the market. For example, CyLex Systems (www.cylexsys.com) offers a completely outsourced imaging solution, storing customers’ images in a document vault maintained by EMC2. Affiliated Computer Services (www.acs-inc.com) provides image archival, retrieval and document management services (among other outsourcing services). DashCenter (www.dashcenter.com) hosts Web applications that include “thick content” such as photos, maps, X-rays, satellite images, documents, drawings and audio/video. Even output-oriented companies such as Lason (www.lason.com) are adding document repository outsourcing to their service offerings.

For outsourcing providers with established businesses and IT infrastructures, the key is to add the capability for customers to access their documents from Web browsers. While some service providers offer browser access today, others still require proprietary client software.

Services vs. Software

As the ASP trend continues to grow, a larger percentage of IT procurement dollars will go to service firms instead of software vendors. EDMS vendors will need to provide software to ASPs or diversify into that business themselves in order to grow.

Vendors such as Documentum (www.documentum.com) and FileNet (www.filenet.com) are taking a partnership approach. Documentum recently announced that it is joining the newly-formed ASP International Forum, and will work with providers such as Blueline Online, ConnectSite.com, and CyLex to offer hosted versions of Documentum software. FileNet is working with ACS to provide the back-end technology for ACS’s document outsourcing offering.

Other vendors will actually manage the rentable applications and data centers themselves. For example, last year Open Text (www.opentext.com) built its own hosting infrastructure and began offering a hosted version of its Livelink software, although the service has not been widely marketed to date.

Insci-statements.com (www.insci.com) recently announced a new portal service for electronic bill storage and presentment. The service will allow customers to outsource the management and delivery of bills, statements, invoices and other transaction documents via the Web. Insci believes that demand for its service will be fueled by a recent ruling by the Federal Reserve that allows banks to send statements to customers electronically or post them on a Web site, rather than sending them through the mail.

The Path Ahead

Offloading document management makes sense for many organizations, especially for small- to mid-sized businesses with limited IT resources and expertise. Outsourcing means fast implementation, flexible pricing and the ability to change business focus and strategies with less worries about IT impact. And the vendors and service bureaus in the EDMS market are stepping up to take advantage of the opportunity.

Just how quickly the market will shift to the ASP model remains to be seen. Despite eye-popping predictions for market growth, we’ve seen that organizations are not blindly jumping on the bandwagon. Turning over sensitive data or intellectual capital to somebody else is inherently risky, and some security-conscious companies will refuse to outsource mission-critical applications or sensitive data to outside providers, no matter what. Reliability and availability are also critical, as companies want assurances that their applications and their data will be there when they need them. Service-level agreements will become more important than ever in the ASP space.

From an application standpoint, the immediate opportunity for repository management and hosting is in production applications such as claims processing, legal documentation and new drug approvals. Such applications represent obvious pain points for organizations with clear return on investment. Broad-based EDMS applications, such as managing email, are long-term opportunities.

James K. Watson Jr. is president and Richard Medina is a senior analyst with Doculabs, technology advisory firm in Chicago. For information, contact 312-433-7793, info@doculabs.com or visit www.doculabs.com.