ASP Market to Reach $25.3 Billion by 2004

The worldwide market for the application service provider (ASP) industry is forecast to grow from $1 billion in 1999 to $3.6 billion in 2000, to more than $25.3 billion by 2004, according the Dataquest unit of Gartner Group, Inc.

“The ASP market represents a major computing revolution with the power to dramatically redraw today’s IT ecosystem based on the delivery of application services over a network,” said Ben Pring, principal analyst for Dataquest’s Application Services Worldwide program. “Software licensing models, application and networking architectures, and vendor strategies will all be impacted greatly. Eventually, business services wrapped around application functionality will be most useful to customers.”

Within the ASP market, there is the emergence of a new architecture for “Web native software” — software that exists purely on the Internet and enables the delivery of business services to ASP customers.

“For enterprises of all sizes, the opportunity to secure Tier 1 application functionality while forgoing significant infrastructure, software and personnel investment is alluring, as is the lower total cost of ownership, which is estimated between 30 percent and 70 percent, depending on the application and the services provided,” Pring said.

According to Dataquest, North America has led the worldwide ASP market, but the market will become much more global in the next few years. In 1999, North America accounted for 65 percent of ASP revenue. In 2004, the North America region is forecast to represent 45 percent of ASP revenue. Europe accounted for 20 percent of the ASP market in 1999, and the region is projected to have 32 percent of the market in 2004. Dataquest analysts said the Internet is accelerating the adoption of new applications and technologies outside of the United States.

“In the ‘pre-Internet’ world, it was common for the European and Asian markets to lag behind the United States,” Pring said. “However, by 2004, these markets will be as large and as mature in Europe and Asia/Pacific as in the United States. Another driver in these other regions is European and Asian markets will be more orientated toward mobile ASP applications than the United States. Mobile telecom operators will develop more sophisticated, business-user-focused applications, which are delivered, in essence, via an ASP market. The greater penetration of mobile/cellular users outside the United States will produce a fertile worldwide marketplace to exploit.”

While the ASP industry will continue to show strong growth rates through 2004, Dataquest also says the industry is in a delicate and precarious phase in its development.

“The next 12 months may very well determine the future prospects of the ASP model, as ASPs scramble to position themselves in the market, chase down an ever-receding customer base and replace grandiose marketing claims with concise, sober-minded business propositions,” Pring said.

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