Most ASPs will die by 2004, says Gartner

Only a handful of application service providers (ASPs) will survive the next four years as the nascent industry consolidates through bankruptcies and mergers, according to a new study by researcher Gartner.

By 2004, only 20 of the world's existing 480 ASPs will stay the course in a market that will be worth about $25.3bn, said the survey. The survivors will realise that they have to operate in focused markets and compete with innovative customer service, says Gartner analyst Audrey Apfel.

She believes the remaining ASPs will be those that understand selling rentable software is similar to providing commodity telephone services, and that customer service, scalability and performance are key factors.

"The mistake that ASPs are making today is that they don't have focus - they can't be one-stop shops," she said. "There's too much expertise through too many layers. They are trying that say that they can manage all customer support, all operations and data centres."

One casualty is Pandesic, which recently closed its business-to-consumer venture blaming slower than anticipated market acceptance for its ecommerce services. "The failure of Pandesic is only the tip of the iceberg," said Apfel. "We expect many other major ASP brands will fail during the coming months."

Despite its uncertain future, the market continues to explode. Gartner's Dataquest subsidiary predicts that the global ASP market will balloon from $1bn in 1999 to $3.6bn this year - and eventually $25.3bn in 2004.

Although the market is being led by the US, Europe will become an important region particularly for mobile ASP applications. Europe will control 30 per cent of the ASP market by 2004, compared with 20 per cent in 1999. The US will account for 45 per cent of ASP revenue from a 1999 figure of 65 per cent, according to Dataquest.

Ben Pring, an analyst at Dataquest, said: "Mobile telecoms operators will develop more sophisticated business user-focused applications which are delivered, in essence, via an ASP market. The greater penetration of mobile users outside the US will produce a fertile worldwide marketplace to exploit."