Large Companies Showing Interest in ASP Services

Contrary to what has been the common perception, larger businesses are more likely to buy ASP services than small businesses, according to a study conducted by PMP Research on behalf of The ASP Industry Consortium.

The year-long study interviewed more than 3,000 buyers and vendors in 17 countries in order to track evolving attitudes and trends in ASP deployment.

More than 40 percent of companies recorded as ASP users have turnovers in excess of $100 million and 44 percent employ in excess of 500 people. Overall, there is a 40 percent increase in the willingness of those using outsourcing to purchase ASP services over companies that do not use outsourcing. The highest incidence of companies using outsourcing occurs in Norway, followed by Brazil, Singapore and Italy, with most outsourcing activity appearing in the public sector.

“The ASP industry has witnessed a turbulent time over the past 12 months and some of the winners and losers are emerging,” said Neil Ferguson, director of research at PMP. “We are now in the stage of market development where vendors must clearly demonstrate a compelling business proposition in which buyers have confidence.”

The research also found a high level of latent demand for ASP services across the world, but before such demand develops into mainstream adoption, potential users require compelling evidence that the ASP model works. Just under one-quarter of companies contacted (23 percent) are “likely” to use ASP services. Of these, 32 percent anticipate renting some form of application from an ASP within 12 months. However, the survey findings indicate the market will reach a level of relative maturity in three years, with 71 percent of potential users anticipating ASP usage within that time frame.

But the services offered by ASPs will likely change as the market matures. According to research by Ovum, the industry will transform — moving away from applications that mirror ERP software and embracing a new range of services. Ovum predicts that these services will drive ASP market growth to $49.3 billion by 2006.

Market growth will be driven on the supply side by two main trends, Ovum found. The first, “Wave 2” ASP vendors supplying software only as a service. The second, growth in new network applications including unified messaging and multichannel call centers. “Wave 1” ASP vendors, such as Baan, SAP, IBM and Oracle, who design applications for the client/server environment, will continue to control the greatest amount of market share, however this will be declining rapidly by 2006.

“The new kids on the block are ‘Wave 2’ ASP vendors who have designed their software for delivery as a centrally managed service, and have moved on from the old ‘product-centric’ approach,” said Mary Hope, senior analyst at Ovum. “In addition to these vendors, the market for messaging applications will increase as there is a natural affinity with the ASP model of delivery. Messaging will soften up the market for a broader range of ASP services. By creating services designed specifically for a ‘one to many’ model of delivery, greater efficiencies can be achieved.”

Consumer demand for the new ASP services will also have a significant impact on ASP market growth. Driving demand, benefits to individuals and companies emerge, including: software delivery as a service can be used faster, within hours of the agreement being finalized, and service is assured; regular enhancements can be made centrally without conventional multi multipoint upgrades; and costs are predictable.

As consumer demand increases, players in the market need to be proactive to secure their place in the pecking order, according to Ovum. Vendors such as Oracle and Microsoft now consistently purport that “software as a service,” rather than “software as a product”, is the future of the industry.

“As the ASP market grows to encompass more services and options, vendors that have traditionally dominated the IT industry need to be alert to changes,” Hope said. “Vendors ignoring this trend will miss out on market share.”

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