Entrepreneurship and an Asp in Financial Services

By Puelz, Robert | Journal of Business and Entrepreneurship, October 2001 | Go to article overview

Entrepreneurship and an Asp in Financial Services


Puelz, Robert, Journal of Business and Entrepreneurship


ABSTRACT

Application service providers (ASPs) provide a rich framework for exploring entrepreneurial invention since an ASP is often created to supply firms that demand specialized, outsourced digital solutions. This paper documents the development of a small ASP, Ignite Sales, Inc., from its formation in 1996 and analyzes aspects of its primary product, MoneyMatch, with benchmark data from 16 financial institutions. The methodology about how a financial institution can view a valuation from an Internet-based project is discussed, and the inherent uncertainties of the variables are addressed via simulation. Simulation results on the financial valuation of MoneyMatch suggest that it is a product with the potential of a high return, depending on the product's price and the efficacy of on-line utilization.

INTRODUCTION

E-commerce opportunities have been created in a variety of areas for many types of businesses. Application service providers (ASPs) have arisen to serve the needs of more traditional firms by offering these firms an outsourced arrangement to implement, host and manage an application from an ASP controlled location.1 The ASP model provides firms with Internet requirements the ability to engage frontier technology without searching for information technology (IT) talent or investing in specially trained full-time employees.2 Indeed, Lacity and Willcocks (1998) and Lacity, Willcocks and Feeny (1996) have shown that selective outsourcing of IT is important to the strategic planning of a firm since it permits the firm to control overall strategy while vendors, who possess specialized expertise, can often supply their services at a cost lower than the firm can obtain internally. Therefore it is not surprising that much of the ASP model landscape is treed with entrepreneurs and their ideas that, ideally, help make more traditional firms both efficient and top-line enhanced, relative to these firms deploying software and service with in-house resources. This environment presents an ideal opportunity for an entrepreneur who understands traditional business models and strategies and can predict the evolution of a firm or an industry and its modus operandi. The financial services arena provides a particularly fruitful set of case studies because it possesses both a history and a future, an existing structure in need of modification for an economy where information is a good with properties that offer a new domain of economic opportunities.3

On-line banking has broad appeal and most current non on-line banking consumers have the expectation that this will become one of a bank's required offerings in its set of services. While the movement into on-line banking may initially be regarded as defensive management it also presents a bank with a new source of revenue growth.4 One of the questions confronted by banks, or more broadly, financial institutions, is how they implement their web-based opportunities, and whether to use an ASP for Internet-related activity. Customer relationship management has been a primary interest over the past few years and technical innovation has presented financial firms with the opportunity to think of new, more efficient ways to market and service customers.5

The focus of this paper is clinical in that it looks at a particular firm, Ignite Sales, Inc., an ASP that began with an entrepreneurial idea and limited capital. It outlines and discusses the initiation of Ignite, then moves from the clinical to a more general analysis of how this ASP measures the financial impact of their services to their customers. A measured return on investment approach is taken that embodies Internet-related operational uncertainties, which permits the analysis of web-collected data and integrates it with a more typical valuation model.6 A simple set of questions that can calibrate the impact of on-line banking software on financial institutions is discussed after which a simulation analysis is undertaken that explores the software's potential benefit with benchmark data provided by actual financial institutions. …

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