Application Powerlifters

Unlike Atlas, the legendary load-bearing Titan, integrator CSI Software (Houston) wasn't fated to hold up the heavens. It merely had to do what weight-training guru Charles Atlas did back when he was a 97-pound weakling. It had to beef up. Granted, CSI wasn't getting sand kicked in its face by the bullies on the beach. Nonetheless, in late 2000, the company had committed itself to a job requiring plenty of muscle. CSI would be offering to shoulder its customers' IT infrastructures.

CSI is a management and billing services provider for membership-based organizations, such as athletic, fitness, and country clubs. Traditionally, the company has sold not only its own software, but also point of sale (POS) hardware and peripherals. While CSI still sells hardware, it can now lighten the IT load for many of its customers. In November 2000, CSI went live as an application service provider (ASP), offering a Web-hosted version of Club Management System, its core software product. The hosted version includes the front desk and back office functionality found in CSI's WAN (wide area network)-based client/server version - membership management, demographics analysis, fitness analysis, payment processing, inventory control, and financial reporting. To that mix, the hosted version adds the capability for club members to access services from their own computers.

Beginning its second year as an ASP, CSI sees the one-to-many software delivery model as central to its future revenue base. To sustain profitability selling a "hardware lite" system, however, CSI knows it must adhere to two key strategies: 1) Build into the product only core, not customized, functionality; 2) Sell it only to customers for whom the cost or service advantages of a hosted model are obvious.

Only Dumbbells Offer Customization
As an ASP, CSI sticks to a fundamental tenet of the one-to-many model - make sure all customers are running on the same version of the software. That way CSI doesn't have to do constant tweaking. "We try to stay away from customizing for particular customers," says CSI VP Frank McDuff. "It's hard to support 1,000 customers if they're using 100 different versions of your software."

When a club member goes to her club's home page to access services, she is presented with links that take her to CSI's Web site. From that point, she sees only CSI-developed pages, residing on CSI's Web servers. (For an explanation of how CSI handles application and data storage, see the sidebar on page 50.) Therefore, a design change made to accommodate one customer would show up on the screens of all users - not exactly the kind of one-to-many model CSI has in mind. Says Jonathan Ross, CSI's director of product development, "Our philosophy is to incorporate only ideas that make sense for the majority of our customers."

CSI also avoids making frequent design changes by building user-defined fields into the standard interface. For example, an athletic club may want members to enter information about fitness goals, while a country club may want to know each member's golf handicap. In addition, POS functions, such as refunds, credits, and voids, can be turned on or off depending on what level of employee authorization a customer wants.

Customer Costs - Always A Weighty Issue
In marketing its hosted application, CSI emphasizes its ability to reduce hardware and software costs, lessen IT responsibilities, and eliminate downtime for upgrades. In terms of costs, the ASP version is the better choice for many customers, but not all. That's why CSI continues to offer its client/server version. A chief determining factor is whether or not the customer has already made significant investments in POS hardware, servers, and network infrastructure. "If a multisite customer is used to running on a VPN (virtual private network) or already owns a server, we will still sell the client/server product," McDuff admits. "But, customers without those things can access the ASP version from inexpensive, stripped down computers - $600 or $700 Web appliances." For customers who are deciding whether to build and maintain their own infrastructure or let CSI carry the load, CSI typically does a three-year cost comparison. "The results can be as obvious as showing that an own-it-yourself model will cost $65,000 today and $40,000 over the next three years, while paying for our hosted services will cost $4,000 today and $42,000 over three years," McDuff explains. "Depending upon a customer's size, needs, and resources, sometimes the costs are lopsided in favor of the hosted application, but sometimes they're not. In any case, it tends to be a no-brainer. Either it really makes sense, or it doesn't make sense at all."

Whether or not the ASP model reduces customers' costs, CSI can still sell its capacity for reducing customers' headaches. "Being able to unload IT responsibilities and problems is particularly attractive to customers in our industry. Their core expertise is running fitness clubs, not technology," McDuff notes. Customers should also appreciate CSI's ability to deliver upgrades without causing downtime. Because CSI runs a single version of its software, enhancements are instantly accessible, without interruption, to all users. "In a client/server model, someone has to physically go to the computers and load the upgrade from a CD-ROM," McDuff explains. "That makes business owners cringe because their system may be down while the upgrade settles in."

Pressing On As An ASP
CSI is already providing hosted services to 25 sites, including two multiple club chains. Even with those sales, CSI's ASP model constitutes only 10% or less of the company's revenue. Selling an initial 12-month subscription doesn't generate the same level of revenue as would a typical client/server sale. Therefore, CSI's hosted services contracts will need to run at least two years to cover the costs of software development, support, and the use of an Internet data center (IDC) for storage. "The ASP model is a bit of a leap for us," McDuff admits. "But, we see it as a long-term business venture. We're working to provide a good service in order to keep our customers. Plus, the decreasing costs of bandwidth and IDCs are making the ASP model increasingly profitable."

Finally, CSI's confidence is bolstered by the ease of nationally marketing its hosted services. Because the software interface is on the Web, potential customers can log on to CSI's site and try out the club management tools. Moreover, CSI can guarantee buyers fast turnaround between purchase and actual use. "Once their data transmission lines are in place and we have their data, customers can be running the system in a matter of days," McDuff says. "With traditional software, you have to set up the computers, load the software, and load the network."

Of course, for CSI, any loading at customers' sites is to be avoided. After all, when you're the Charles Atlas of application service providers, your customers are allowed to remain 97-pound IT weaklings.