ASPs Increase Revenue, Lack Dominant Vendor

Market growth among application service providers (ASPs) remains strong, despite the challenges the market has had to endure, according to research by International Data Corp. (IDC).

ASP revenues are increasing at a blistering compound annual growth rate (CAGR) of 89 percent that will propel them from $986 million in 2000 to almost $24 billion in 2005.

“Despite the well-publicized challenges facing the ASP market today, the ASP industry is moving beyond the days of hype and producing some real success stories,” said Amy Mizoras, senior analyst for IDC’s Applications and Application Service Providers research. “Our data clearly shows that ASPs are alive and kicking.”

IDC attributes the market’s growth to the adoption of ASP services within large companies and the formation of supplier partnerships. The United States is and will remain the largest market for ASP services through 2005. However, IDC believes Western Europe represents an emerging opportunity. ASP revenues there will soar from $93 million in 2000 to more than $5.7 billion in 2005, representing a 128 percent CAGR. The lack of skilled IT professionals and the sophistication of service-level agreements are contributing to Western Europe’s ASP market growth.

ASP services for personal and collaborative applications will also present a growing opportunity throughout 2005, according to IDC. These applications accounted for just 30 percent of the market in 2000, but by 2005 their combined share will increase to 45 percent.

“It’s generally accepted that software as a service concept will become the accepted delivery model for application functionality. However, what is yet to be determined is who will be the dominant suppliers of these ASP services,” said Jessica Goepfert, senior analyst for IDC’s ASP research program. “This means that even the ASPs who are the current market leaders cannot afford to rest on their laurels.”

According to research by Gartner Dataquest, the top 10 ASP vendors accounted for just 30 percent of the total market in the United States. USinternetworking took the No. 1 position with revenue of $110 million in 200, and Qwest Cyber.Solutions was No. 2 with revenue totaling $100 million.

“These market share results demonstrate how immature and fragmented the ASP market still is,” said Ben Pring, principal analyst for Gartner Dataquest’s IT services worldwide group. “These findings suggest there are a lot of ASPs. In fact, we estimate there are about 500 operating in the U.S. market, but they are generating small amounts of revenue.”

Gartner Dataquest found the U.S. ASP market had revenue of $1.4 billion in 2000, but the market will be in a constant phase of reinvention for the foreseeable future.

“New ASPs have to be constantly engaged in reinvention,” Pring said. “In fact, leading ASPs are already on the sixth iteration of their strategy. Reinvention for these companies will not be a once-a-year activity, but rather a day-to-day fact of life, carried out in real time. The ability to reinvent will be a key element for successful ASPs in the next 46 months.”

Top U.S. ASP Vendors by Revenue
Company 2000
USi 110.0 7.7
Qwest Cyber.Solutions 100.0 7.0
Interliant 52.0 3.6
PeopleSoft 40.0 2.8
Corio 33.5 2.3
eOnline 25.0 1.7
Breakaway Solutions 20.0 1.4
Agilera 20.0 1.4
Surebridge 17.0 1.2
Telecomputing 11.0 0.8
Others 1,001.5 70.1
Total Market 1,430.0 100.0
Source: Gartner Dataquest

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