ASPs Look to Rebound from Slump

Worldwide spending on application service providers (ASPs) should experience steady growth, reaching nearly $20 billion in 2006, according to a report by International Data Corp. (IDC).

The economic slump of the past two years has led to lower-than-expected growth of the ASP market, but a renewed interest in application management will help bring ASPs back, IDC found. Both ASPs and traditional independent software vendors (ISVs) have introduced application management (AM) services. IDC estimates that the application management market reached $11.1 billion in 2001 and expects it to reach $21.8 billion in 2006.

“Spending on ASP and AM services continues to increase as companies of all sizes look to outsource tactical maintenance and management activities in order to focus on strategic activities,” said Amy Mizoras, program manager for IDC’s ASP and Applications Research. “A critical mass of ASP adopters are helping that industry move into the mainstream, while an influx of new suppliers such as application vendors is reinvigorating traditional AM.”

IDC also believes that the lines are blurring between traditional application management and ASP services. Vendors in the application outsourcing space will discover the similarities and nuances of both markets and will reap the benefits.

As for ASP users, a survey by the Information Technology Association of America (ITAA) found that ASP customers are getting high return on investment, cost savings, enhanced security, improved infrastructure, emergency back-up, better time to market and access to new technology. More than 60 percent of respondents indicated that the level of service provided by their ASP was either “high” or “extremely high.”

“This survey shows that ASPs deliver a very strong value proposition,” said ITAA President Harris Miller. “The data also indicate that customers know what they want from their applications service provider and, based on the high marks tallied here, they are receiving it.”

Customers registered solid approval of the ASP value proposition in the survey. Thirty-nine percent of respondents estimated their return on investment of between 10 and 50 percent, while an additional 14 percent of respondents placed it between 51 and 100 percent.

The data suggest that much of the benefit of using an ASP goes beyond simple cost savings, although respondents said cuts in staff and cost were motivating factors (81 and 71 percent, respectively). Other important benefits included security, improved infrastructure, emergency back-up, better time to market, and access to new technology.

In terms of how customers measure ASP performance, service availability is the most often used factor (74 percent), followed by operational reliability (45 percent) and response time (36 percent).

Three out of four respondents indicated that they are currently using an ASP for the first time. Companies expanding their use of an ASP were most likely to do so in areas like database (27 percent), accounting/finance (23 percent) and email/office productivity (19 percent).

A majority of survey respondents fell in the small to mid-sized company range (55 percent under $100 million in annual revenue), although a majority (65 percent) said their firms operate more than one multiserver data center. Another 57 percent said they have been using their current ASP for more than one year. Thirty-seven percent of respondents described their job title as either “CIO” or “MIS director.”

Eighty ASP customers from multiple industries participated in the ITAA survey.

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