E-BUSINESS OUTSOURCING

Many companies are relying upon e-business infrastructure outsourcing to attain the

guarantee of application availability, flexibility and scalability in a timely and cost-effective

manner. Scalability and security are two major issues today that are promoting the outsourcing

of e-commerce applications. Scalability is needed to address the phenomenal growth and surges

in internet traffic. Security is required to guard against hackers, viruses, industrial espionage,

denial of service attacks and fraud.

E-business applications need to be available 24 x 7. Some companies are outsourcing

their e-business applications to protect against the damaging effects of downtime on e-customer

satisfaction, reputation of the e-commerce business and revenues. Many of the e-commerce

outsourcing companies will provide the critical infrastructure for web-based e-commerce

applications. They may provide the necessary turnkey infrastructure, permit acceleration of

e-business application deployment, minimize downtime, and lower the total cost of ownership.

There are many contractual issues that need to be addressed in these e-business

outsourcing relationships. Probably the most important is the Service Level Agreement

(“SLA”). The SLA is the contractual mechanism for providing accountability in the outsourcing

relationship and for measuring performance.

One form of e-business outsourcing is through the use of Application Service Providers

(ASP’s).412 The ASP model is becoming increasingly more popular. They provide remote access

to computing, software, communications and data storage resources enabling their licensed

customers to perform operations using the functionality provided by specific application

software or a bundle of application software products. The ASP application software is

accessible through the internet or other communications networks. Today’s ASP’s provide

access to browser-based, Web-enabled application software. The application software may be

third-party software licensed by the ASP, software licensed or developed by the customer, or

proprietary software developed by or for the ASP or a combination of any of the foregoing. Of

course, each one of these situations presents different contractual and intellectual property

concerns.

The Gartner Group believes the ASP market is poised for significant growth. The

Gartner Group estimates that ASP revenues for 2000 will exceed $3.5 billion and grow to more

than $25 billion by 2004.413 End users outsource a wide variety of applications to ASP’s.

Among these applications hosted e-commerce and IT outsourcing services are expected to

increase dramatically.