ASPs Growing in Acceptance Among Businesses

Application service providers (ASPs) are third-party entities that manage and distribute software-based services and solutions to customers across a wide area network from a central data center, and their number has grown from roughly 70 in 1999 to more than 100 in the first quarter of 2000, according to Cahners In-Stat Group.

One of the biggest problems facing the ASP sector has been its lack of recognition. But according to a Web survey by the Information Technology Association of America (ITAA) that polled readers from Computerworld, CFO, Internet Week, and Upside Magazine, the ASP concept is coming into sharper focus. Nearly two-thirds of the 1,526 respondents agree on a common definition of ASPs. The survey also found the marketplace is accepting the ASP business model, as almost 20 percent of the respondents currently use as ASP and more than one-third of respondents not doing so plan an implementation within the next six months.

According to the ITAA survey, the most popular applications being handled by ASPs include financial, e-commerce, and customer relationship management (CRM). Small to medium-sized companies are still the primary adopters of current and future ASP offerings. Prospective ASP users prefer services on a subscription basis (71.4 percent) over a per-transaction basis (19.5 percent), and services based on a one-time fee (12.6 percent).

The main concerns that respondents have about ASPs are vendor stability, longevity, and security, the ITAA survey found. That feeling was echoed by a Zona Research report that found the general optimism of ASP users was countered by security and performance concerns. To that end, In-Stat predicts that US-based ASPs are expected to spend nearly $1 billion on infrastructure in 2000 in order to support their growing applications services businesses. The spending will be necessary because ASPs see their customer base increasing from an average of 25 customers per company in 1999 to nearly 170 in 2000.

According to In-Stat, ASPs are offering more than just access to applications over the Internet, with many offering core IT infrastructure services (management, monitoring, support, and troubleshooting) and high-speed connectivity.

“These firms’ desire to surround their customers with so many services may present challenges when building their core competencies and IT platforms,” said Kneko Burney, Director of Markets & Computing at In-Stat. “This clearly indicates that most ASPs are not at all focused on application delivery and/or may still be unsure of what their customers require from them. Further, many of these companies may feel compelled to offer so many services to ensure reliable application delivery.”

International Data Corp. (IDC) sees a battle brewing between more traditional Internet service firms and ASPs over e-commerce projects. Because of the overwhelming demand for e-commerce services, many ASPs are now offering services built around e-commerce applications.

“The end result of the ASP and Internet services firm e-commerce work will be similar. However, the way each firm reaches this result will be different,” said Meredith Whalen, program manager for IDC’s Application Service Provider and Internet Services research programs. “ASPs will not necessarily compete on an apples-to-apples basis with Internet services firms. Instead, they will position their services as an alternative to these firms. The challenge for both types of firms will be in communicating the differences between their offerings. The risk lies in ASPs and Internet service firms trying to be all things to all people. If this occurs, all parties will lose as customers will be confused.”

The actual services offered by ASPs and Internet service firms differ. Internet service firms typically offer up-front consulting and design services, whereas ASPs usually don’t. On the other hand, ASPs offer ongoing site operation and management services, while most Internet service firms do not.

Additionally, there are differences with respect to the approach each type of company uses in developing e-commerce sites. One of the differences is the amount of customization each type of company offers. ASPs perform minimal customization while Internet service firms deliver custom projects. Duration of the projects is also different, with ASPs generally delivering on shorter project time lines than typical Internet service firms. Each type of company also has its own payment structure. Internet service firms typically require a lump sum payment. ASPs spread their fees over several years on a monthly basis.

There is quite a bit of money at stake in the ASP market. IDG’s research shows ASP spending will hit $7.8 billion by 2004.

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