May 4, 2000

E-Business Application Management: Outsourcing Web-Based Application Maintenance

by Stephanie Moore

Companies that outsource the development and deployment of Web sites or Web-based applications typically don't pay attention to the same kind of post-implementation planning as they do with other mission-critical systems. The goal is to get these new systems up, and get them up fast. As a result, once the consultants pack up and depart, unless a formal knowledge transfer and training process was used with internal staff, this staff has no idea how to efficiently maintain or manage the new systems. Companies in this position have several options, including hiring and/or training staff, engaging the Web application developer to manage the application, or looking to a traditional outsourcer for support. In many cases, however, these options are not wholly appropriate.

Fortunately, during 1999, a new breed of vendor emerged to specifically support this Web-based application maintenance and management market. The most notable vendors in this space are Cutler Systems Management and MimEcom. MimEcom is solely focused on e-commerce systems (that are developed and deployed within a certain architecture), while Cutler will support any e-business application, assuming it is, in fact, manageable. Today, companies that find themselves in the position of having to hire staff, contractors or vendors to maintain and manage their newly implemented Web-based systems should strongly consider using one of these so-called managed service providers to do the job. The services that these vendors provide fill the vacuum left by departing application development consultants and are just as important to the overall success of the Web site initiative as the developers are. This Planning Assumption will focus on Web application maintenance and management outsourcing and Cutler Systems Management and MimEcom's capabilities in this market.

Proof/Notes

Companies continue to invest significant amounts of money in building Web sites and Web-based applications. In most cases, companies hire outside talent to help with the design, development and deployment of these new systems. Some companies make sure that internal staff are involved in the overall project and that external consultants are responsible for transferring their knowledge to internal staff before they leave. In other situations, internal IT staff does not participate in the design and development phase, and so it is unable to effectively maintain and manage the new system going forward. This leaves the user company scrambling to find the talent to manage the new applications. Thus, there arises the need for the Web-based application outsourcer.

What Is a Web Application Management Service Provider?

A Web application management service provider is similar to a traditional application outsourcer. However, this service provider is responsible for the management and maintenance of a discrete Web-based application, typically a Web site. The application manager is not a data center or an application service provider (ASP), such as Exodus or Corio, so it does not host the application; it typically partners with a hosting vendor. It does, however, maintain and manage the application to ensure that it is constantly available, secure and functioning properly. In addition, it is responsible for daily maintenance and necessary upgrades. It does not, however, do any sort of new development.

Alternatives to a Managed Web Application Service Provider

Web application service providers are an excellent solution for companies that do not want to internally develop the requisite Web skillset and that do not have a 24x7 culture. Companies in this situation do have several options, although in many cases, the Web application outsourcer will be the best option.

Alternatives

• Train staff. This is not usually a viable option for traditional enterprises, since internal staff is already overburdened supporting core IT systems and is usually unfamiliar with Web-based technologies and/or the specific application. In addition, most Web sites require 24x7 uptime. If the internal IT organization does not have a 24x7 culture, this requirement will be very difficult to satisfy. In dot com companies, where the Web site is the business, staff is typically acquired and trained after the initial deployment takes place.
• Use the original application developer to manage the site. Some application development vendors, such as Osprey and Sapient, will continue to manage the site post-implementation. In these cases, it is generally better and more cost effective to take this route. The vendor already knows the application and has the skillsets to manage it. Unfortunately, many application development consultants, such as Proxicom, iXL and Razorfish, do not want to manage or maintain the applications that they build. These vendors are fully engaged with the more lucrative work of developing e-business strategies and applications. Their business models, skillsets, infrastructure and processes are not geared to application maintenance engagements.
• Use traditional outsourcing consultants for support. Traditional outsourcers, such as EDS and IBM, will maintain and host Web-based applications; however, we don't believe that they yet have a critical mass of skills to cost effectively support these types of implementations. This will change during the next 18 months as the traditional outsourcers transition their skillsets to support the e-economy.
• Use other application development vendors. Vendors such as Keane and Cognizant will manage Web-based applications built by another vendor and are a more appropriate choice for this type of outsourcing than the large outsourcers. Firms in this category are scrambling to build a Web credential and are quickly transitioning staff from traditional outsourcing arrangements to these types of engagements.

Not an Alternative

As companies realize their Web application management predicament, they sometimes look to the hosting vendors such as Exodus or Cable and Wireless to take on the e-business application management burden. However, these vendors are infrastructure providers, not application outsourcers (note that as hosting services become commoditized, more and more of these vendors will enter the application management market [.9p]). They provide such things as real estate, hardware and a networking infrastructure, but they have no specific application expertise.

The Emergence of the Internet Application Management Specialists

Since the viable alternatives are not appropriate for all situations, there has arisen a significant opportunity for discrete Web applications management experts. While the number of vendors in this market is tiny today, expect this market to grow during the next two years [.9p] as Internet service providers (ISPs), ASPs and hosting vendors (which see their offerings become commoditized) and traditional and new application development vendors and outsourcers (which are looking for new growth opportunities that don't require rare Web strategists or application development superstars) begin to tackle this market. As with all other segments of the services industry, however, the growth of this market segment will be constrained by resources.

Cutler Systems Management

Cutler Systems Management was founded in January 1999. The founders of Cutler, both from Internet IT services powerhouse Proxicom, saw, during their time on the Internet application development front lines, the need for application maintenance and management services. They decided to enter (or more appropriately, create) the market, not only with the intention of bailing out user companies that found themselves in this Internet application management predicament, but also with the intention of partnering with Internet application development firms that could not and did not want to provide this service. Cutler's goal is to become involved in the project before it is designed and built so that the there is a seamless transition for the client and so that the system is deployed on a platform and using technology with which Cutler is comfortable — thereby saving the client money and, at the same time, increasing Cutler's margins. The services that Cutler Systems Management provides are just as critical to the overall success of the Web site initiative as the application development and design services.

Not an Alternative As companies realize their Web application management predicament, they sometimes look to the hosting vendors such as Exodus or Cable and Wireless to take on the e-business application management burden. However, these vendors are infrastructure providers, not application outsourcers (note that as hosting services become commoditized, more and more of these vendors will enter the application management market [.9p]). They provide such things as real estate, hardware and a networking infrastructure, but they have no specific application expertise. The Emergence of the Internet Application Management Specialists Since the viable alternatives are not appropriate for all situations, there has arisen a significant opportunity for discrete Web applications management experts. While the number of vendors in this market is tiny today, expect this market to grow during the next two years [.9p] as Internet service providers (ISPs), ASPs and hosting vendors (which see their offerings become commoditized) and traditional and new application development vendors and outsourcers (which are looking for new growth opportunities that don't require rare Web strategists or application development superstars) begin to tackle this market. As with all other segments of the services industry, however, the growth of this market segment will be constrained by resources. Cutler Systems Management Cutler Systems Management was founded in January 1999. The founders of Cutler, both from Internet IT services powerhouse Proxicom, saw, during their time on the Internet application development front lines, the need for application maintenance and management services. They decided to enter (or more appropriately, create) the market, not only with the intention of bailing out user companies that found themselves in this Internet application management predicament, but also with the intention of partnering with Internet application development firms that could not and did not want to provide this service. Cutler's goal is to become involved in the project before it is designed and built so that the there is a seamless transition for the client and so that the system is deployed on a platform and using technology with which Cutler is comfortable — thereby saving the client money and, at the same time, increasing Cutler's margins. The services that Cutler Systems Management provides are just as critical to the overall success of the Web site initiative as the application development and design services. During 1999, Cutler began to ramp up staff and make partnerships with well-known consultants. By the end of the year, Cutler had 25 employees and an impressive client list. By April 1, 2000, Cutler had 68 employees and 18 customers, including Pilgrim Baxter, (it manages the PBHGFunds.com Web site) and Stride Rite (iXL built the system, and Cutler maintains it). Today, Cutler has relationships with services firms including Proxicom, iXL, Zefer and Viant. Its success going forward will be related to the number and strength of its partnerships, as well as its ability to gain market share quickly before the potential competitors mentioned above realize this market's opportunity.

The Cutler Process

Phase One: Scoping
This is Cutler's first chance to mitigate risk. At this stage, Cutler meets with the prospect (business managers, development staff, original developer), scans systems specifications and requirements and decides about the worthiness of the engagement. In some cases, the existing systems are undocumented spaghetti and maintaining them would be neither possible nor profitable. Cutler uses the scoping phase to ensure it doesn't take on duds. Cutler does not, however, provide warranties as part of the engagement. It does not want to guarantee a system that someone else built. Phase One is free of charge and takes about a half of a day. The resulting deliverable is a proposal.

Phase Two: Analysis of the actual site
This is when Cutler actually analyzes the systems and the integration issues and decides what the plan should be for the transition and management going forward. For example, here is where it decides what type of skills this engagement will require, the third-party vendor relationships that it will have to establish and manage, how long it will take to make the transition and how much the transition will cost.

Phase Three: Transition phase
At this point, Cutler sets up a staging environment, makes sure it can get into the data center and takes over the system. (Cutler rarely manages an application at the client site. It occasionally manages the system at its facility, but usually at a third-party hosting facility via remote connections.) It is important at this stage to make sure that there is a communication plan with IT groups or business unit managers within the client organization. The liaison at traditional companies is typically a CIO, IT manager or line of business manager. At dot coms, the liaison could be anyone from the CEO to the CFO, to the sole proprietor.

MimEcom

Three founders of Fort Point Partners founded MimEcom in 1999 as a "high-performance e-commerce systems management" vendor. Thus, MimEcom focuses on managing e-commerce applications; its first target being those that Fort Point Partners has built. Like the founders of Cutler Systems Management, the founders of MimEcom saw the need for application support and management in the e-services market. They also knew that Fort Point was neither interested in, nor equipped to accommodate, the application management business.

MimEcom differs from Cutler in that it only manages e-commerce applications and only those that are built on specific platforms using specific technologies. For example, MimEcom will only support systems that use Sun hardware, Cisco networking equipment and Oracle or Informix databases (see Table 1). MimEcom will not work with clients that are committed to other platforms (i.e., Microsoft) because it believes: (1) its platforms represent the best in breed and (2) specializing in a small number of technologies provides a higher quality and more comprehensive service. Cutler is agnostic in terms of the platforms and Web-based systems that it will support. The key is that the systems are maintainable and documented. This is a differentiator in the Web-based application management arena today. However, given MimEcom's specialization, MimEcom clients can expect an easier transition and ramping up phase, and more efficient upgrade cycles.

In terms of services, MimEcom monitors, maintains, upgrades, tunes and fixes problems with its clients' e-commerce systems at an external site (see partners below) after the site has been deployed. MimEcom guarantees clients uptime, reliability and security through its service-level agreements. Staff at MimEcom manage the systems through remote connections, as at Cutler. And like Cutler, it does not develop systems; however, it will help clients assemble systems using components from vendor partners and services from allied SIs. Its goal is to partner with vendors to provide a transparent managed service for its clients — with MimEcom being the client company's single point of contact. MimEcom's prospects are generally established companies that need to develop and maintain a highly transactional e-commerce channel without impacting their internal development organizations.

While MimEcom is qualified to manage large e-commerce sites post-implementation, as evidenced by its strong customer base, it is not appropriate to use MimEcom as a prime contractor for the actual systems assembly or design. Its input during this phase, however, will be invaluable if MimEcom will ultimately maintain the system.

Table 1: Supported MimEcom Platforms and Partners

Source: Giga Information Group

MimEcom went live on Nov. 15, 1999, and today, the company has secured $22 million in first-round funding and nine large clients. Clients include Blue Light (Kmart/SoftBank joint venture), Smith & Hawkin and Stanley Kaplan (a Washington Post Company). MimEcom currently has about 160-plus employees, 65 percent of which are dedicated to engineering and consulting.

The MimEcom Process

Mimecom typically gets involved with the client during the systems development phase through one of its strategic partners, such as Fort Point. In such cases, MimEcom monitors the implementation and then takes over the management. MimEcom manages the application remotely at one of its data center partners.

MimEcom is a good option for companies that have an e-commerce application architecture that matches MimEcom's requirements, but it is an even better option for traditional companies that are planning an e-commerce site and require an outsourcer to manage the site post-implementation. This way, MimEcom can be involved with the implementation and deployment, therefore transition costs, and pain will be reduced.

Costs

All vendors in this category charge a fee for the transition (what the vendors like to call startup services) and then a monthly maintenance charge. Rates for Cutler range from about $35,000 to $200,000 for the transition, which includes all the planning and analysis. Monthly fees go from $10,000 to $75,000 per month, but the average monthly rate is about $15,000 to $20,000. Rates for MimEcom’s startup services range from $100,000 to $250,000. MimEcom’s monthly charges vary widely but currently average $80,000.

With all vendors, the transition fee will be directly related not only to the complexity of the system, but to the amount of training and knowledge transfer required for the outsourcer to efficiently manage the application. This is why it is important to decide upfront who will manage the application. The outsourcer should participate in the design and development of the system (particularly if the outsourcer will only maintain certain architectures) so that the transition process is seamless and inexpensive. The monthly fees will be related to the size and complexity of the application, as well as volumes.

Alternative View

Given how valuable a company's e-business initiatives are, executives should make sure that internal employees are familiar with Web-based applications and e-commerce applications. Completely outsourcing the management of these mission-critical systems is negligent.

Findings & Recommendations

A Web application management service provider is similar to a traditional application outsourcer, but this type of vendor only manages and maintains discrete Web-based applications, typically a Web site. It is responsible for availability, uptime, security, daily maintenance and necessary upgrades, but not any sort of new development.

Web applications, many of which are built without formal processes, documentation and with numerous, transient Web developers, have become a new category of legacy systems. Internal staff is unable to efficiently maintain these applications, and external sources will have no means to efficiently understand and cost effectively maintain them either. In order to avoid creating a new breed of e-legacy applications, companies must apply traditional application development processes to new Web-based applications development.

Managing discrete Web-based applications post-implementation is a problem that many companies are dealing with today. Companies must consider the post-implementation support issues upfront, in order to save money and make the management transition as seamless as possible. Web application management post-implementation is as critical a success factor as design and development.

Companies must have contingency plans for bringing outsourced applications back onsite or outsourcing them to another service provider if the original application outsourcer becomes unsuitable or fails. This means, at the very least, that systems must be thoroughly documented, and companies must make sure that their outsourcing contracts contain appropriate out-clauses if service levels are not met. Companies looking to outsource the management of discrete Web-based applications post-implementation should definitely consider Cutler Systems Management as the best-in-breed choice today in the Web application management category.

Companies looking to develop an e-commerce site or that have already developed an e-commerce site that matches MimEcom's requirements, should consider MimEcom as the best in breed in the managed, large scale e-commerce application space.

The emerging application management vendors will face competition in the next two years from a variety of vendors that are looking for growth opportunities or that see their current skills become commoditized. Competitors will include ASPs, data centers, application development consultants, systems integrators and even ISPs.

References

Giga Research
IdeaByte, Loudcloud Promises Dot Coms That 'the Sky Is the Limit' for Scalability, Joel Yaffe

Planning Assumption, Choosing an Internet IT Services Firm: Help for Traditional Enterprises, Stephanie Moore

Cutler Systems Management, www.cutlersystems.com © 2000 Giga Information Group