HERE COMES THE NEXT REVOLUTION

Is off-site software hosting just for big dealers or for small ones, too?

There was a revolution back when computers first came into dealerships to minimize paperwork and automate business processes. A new revolution is brewing, an outgrowth of the technology that brought on the first information technology boom.

As the Internet alters the dealer-consumer relationship, it also is changing the way dealers communicate with manufacturers, suppliers and other business partners.

In this new electronic economy, dealer management systems (DMS) providers are offering dealers and dealership groups new ways to harness the power of the Internet. It helps dealers streamline their operations. It helps the providers stay ahead of the curve in a fast-changing game.

These companies are becoming application services providers or ASPs, the latest in DMS and Internet technology for dealers. ASPs connect dealerships to a central database from which comes much of the software needed to do business.

"It's like time-sharing on steroids," explains Kurt Lieberman, general manager of retail management solutions at Reynolds & Reynolds Co.

Time-sharing began in other industries some 30 years ago, when computing costs were much higher than they are today.

"ASP today is like `Back to the Future,'" Mr. Lieberman says. "But it won't be the only way things are done in the future."

The ASP, according to Mr. Lieberman, appears best suited for large dealership chains. "Larger chains have already made the decision to connect stores with a wide area network," he continues. "All they need to run an ASP is more speed and an additional connection."

One large chain that is moving in the direction of ASP is AutoNation Inc.

"Our dealers need multiple points of connectivity," says Joyce Renata, AutoNation's vice president of information technology.

She adds, "They need to get to AutoNation for the things we provide, to the manufacturers for the things they provide, to other third parties for the services they provide. That really drove a big change in our infrastructure. It's very costly and ineffective for our dealers to keep adding to single-point connections.

"If our dealerships can get to the Internet, they can get to anywhere they need to go, and that truly is the ultimate low cost from a connectivity standpoint."

She says ASP takes the infrastructure out of the dealership, takes the cost out of buying piecemeal hardware, leasing hardware, hardware maintenance, peripheral maintenance and software maintenance. AutoNation has looked at various ASP proposals from the major DMS providers. The company likely will use more than one company for this service, says Ms. Renata.

Says Mr. Lieberman, "Larger dealer groups can benefit from more standardization and capture more cost saving - meaning less personnel - with an ASP than a smaller dealer group. The smaller the group gets, the benefits scale down, but they're still there.

"A lot of this requires attitudinal change. The willingness to give up a certain level of control is a barrier to a lot of dealers."

Those in the business say an ASP can give a dealer group better control over its operations by taking the servers out of the dealerships. It allows them to standardize set ups, accounting structures, processes and control the quality of data entry.

"Data is more valid when doing store-to-store comparisons when the data being entered is standardized across the group," says Mr. Lieberman.

Reynolds & Reynolds offers almost all of its products via ASP such as Internet lead management, web hosting, e-mail and core dealer management systems. But Mr. Lieberman says using an ASP here and there may make the most sense.

"What it really comes down to is mixing and matching (between ASP and local software) as it makes business sense," he says.

ADP Dealer Services also is in the ASP business. It, too, offers most of its product lineup via ASP.

The ADP ASP package breaks down into four parts. The first part is access services, which is hosting the remote operations and providing system backups and connections to manufacturers.

The second segment is the network service within the dealership itself, which allows employees and departments to communicate and exchange data with each other.

The third part is the actual DMS. The fourth is workstations for employees.

"From the user standpoint it shouldn't make a difference where the applications reside," says Bob Karp, senior vice president of e-business at ADP Dealer Services. "It's up to the dealer to decide who administers the technology."

While an ASP might be best suited to the deeper pockets and wider geographic range of large dealers groups, the benefits to smaller stand-alone stores aren't quite as clear.

"ASP is probably not for the stand-alone dealership," says Mr. Lieberman. "Single-point dealers will be problematic. The economics are just not there."

Smaller dealerships might not have the communications in place. And they likely wouldn't be able to eliminate jobs, just parts of jobs, due to an ASP.

"But there isn't consensus in our industry on that issue," says Mr. Lieberman.

ADP's Mr. Karp says, "Any dealer might want to consider an ASP if they no longer want the responsibility of managing that technology," he says. "Networks have become very complicated at the dealership level. Their core competency is in selling and servicing vehicles."

ADP expects enough small dealers will be interested in an ASP to offer an ASP option for stores with fewer than 20 users. It is Internet based, compared to the secure network it offers to larger groups.

"Technology is driving us quickly to the point where dealers are conducting a lot of business on line," says Mr. Karp. "ASP is just another part of that new economy chain. We want to give dealers choices about the speed and pace that they're willing to go."

Currently the numbers of dealerships and dealer groups using ASP is "a small sliver," says Mr. Lieberman. "But it's going to take an ever-increasing share for the core DMS strategy."

Mr. Karp predicts that up to 25% of dealer groups will go in this direction in the short term. "In the long term, it's anyone's guess," he says.