By Roger Russell

The tax prep application service provider juggernaut has slowed considerably during the past several years, as software providers decline to allocate resources to technology that still isn't in great demand.

"There isn't a significant reason to go to the ASP model based on lower cost," said Roman Kepczyk, president of InfoTech Partners North America. "If the cost is less for both the vendor and the CPA it would make sense; but, so far, we haven't seen a financial advantage inherent in the ASP model."

"We like the concept because it can reduce internal maintenance and cost of support for the firm," Kepczyk said, "but the costs have not come down enough to make it really interesting to most firms."

Jack LaRue, vice president for sales at Dexter, Mich.-based Creative Solutions, a Thomson business, agreed. "The number of firms using an ASP model is in the hundreds and the users can be measured in the low thousands," he said. "They're very happy with it, but it takes some unique conditions to make it attractive."

"One of the primary issues that is impacting operating in a hosted environment is that it is very difficult for a firm to realize the true value proposition by outsourcing technical administration and being able to leverage the hardware investment over a long period of time," he said.

LaRue attributed CSI's double-digit growth to the fact that all of the company's products are available via ASP. "Unless 100 percent of the software a firm needs is available in an ASP - and ideally a single ASP - it doesn't make sense," LaRue said. "If 75 percent of their software requirements are delivered via ASP, and 25 percent on locally installed hardware, they still have 100 percent of hardware and network administration expenses."

CCH's ASP model, Global fx, is adding a number of its products for next tax season to complement the ProSystem fx tax program.

"A lot of firms use us because of our integration," said CCH Tax and Accounting president Kevin Robert. "Firms switching to Global fx would lose some of that integration because not everything is currently available. This year, Client Relate is available on Global fx; and, by the end of the year, we'll add fixed assets, engagement, planning and practice."

Why not do it yourself?
Val Steed, a partner in K2 Enterprises, noted that another factor slowing the growth of ASPs is the lowered cost of individual firms hosting their own server-based computing environment.

"One of the greatest benefits of in-house tax prep is the ability to control your own destiny and not rely on out-of-house resources," he said. "I see almost all firms still clinging to in-house mainly for this key benefit. It really does not take as much an effort to maintain a network as it did a few years ago. So, while ASPs offer much lower costs of network infrastructure, they also offer great risk for tax prep in that they rely on the Internet and can go down."

"This is the key issue," he continued. "Security used to be the key issue; but with 128-bit encryption, now that does not seem to concern folks. The real issue is control."

LaRue and Robert agreed.

"A lot of the early adopters that wanted to work with remote capability used Citrix technology and hosted their own software," said Robert. "Now, they will have to decide whether to migrate off their own Citrix to our ASP environment. That's why we look to continued steady growth, but it's not going to take off for a few more years."

"One of the advantages of ASP technology is anywhere/anytime access," said LaRue, "but rather than have it hosted by someone else, the accounting firm can use technologies such as Microsoft Terminal Server or Citrix MetaFrame. They can connect to their own internal server, so they get the benefits of anywhere/anytime access without having to be working with the additional expense of using a third-party host."

"The downside is there is still some cost for the server and the appropriate software and software licenses, and it requires a higher level of technical expertise in the firm to administer it," he continued. "But we're seeing more firms rolling out this technology rather than going through an ASP. The server-based computing environment is where the growth is happening."

CSI has all of its software available in an ASP environment, as well as fully supported under Terminal Server and MetaFrame technology, according to LaRue.

Meanwhile, RIA, a Thomson business, is experiencing continued success with its Carrollton, Texas-based GoSystem RS and Insource RS products, the first ASPs for individual and corporate tax.

"We have 75,000 users, trending up 15 percent to 18 percent a year," said Boyd Gackle, product manager for GoSystem RS. "This year, we processed 1.7 million returns."

Gackle emphasized that GoSystem was not discontinuing the CD version of the program. "We have a number of clients who use the CD and are happy with it, so we'll continue to support it into the future," he said.

"About 60 percent of our clients use RS [remote server], so we've been successful in penetrating our user base. Most new clients go with the RS model."

A new product for next year's tax season, Tax RS to Go, has already received favorable acceptance from the client base, said Gackle. "This will enable people to do field work at the taxpayer's site without an Internet connection, then upload the data to RS when they get back to the office."

InSource RS, a product sold to corporate enterprises, handles the most complex corporate returns.

"Our product is aimed at the upper end of the market," said product marketing manager Bob Button. "With the ASP model, we can take away some of the client headaches. Since we host the application, the client doesn't have the hassles of down-time for software updates, and we respond quickly if there are sudden law changes."

"When a client dials into our phone support, our people can log in and see exactly what they're talking about, if the client gives us permission," added product manager Molly Delafield.

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