ASP market diluted by bandwagon hoppers

The success of application service providers (ASPs) is being threatened by firms going under the same banner without being able to deliver a full service, according to analysts.

Butler Group's weekly Research Notes market summary says that many ASPs are failing to make a profit despite operating to a sound business plan, and that this is partly due to there being too many companies calling themselves ASPs which have specialities that lie elsewhere.

"For example, when software providers describe themselves as an ASP they may not be able to provide everything an ASP customer requires. Furthermore, they run the risk of losing focus on their core competency - that of their software," the report stated.

Butler also said that ASPs' profits are affected because they are effectively selling a commodity when they sell non-customised applications to SMEs (small and medium sized enterprises), and that commodities have to be sold in large numbers to achieve profitability.

"With the number of ASPs on the market currently targeting SMEs, it becomes obvious that not all of them will survive in their current form," the report said.

Other analysts have also predicted that there will be a shakeout in the market. Gartner recently reported that 60 per cent of ASPs in business this year would close by the end of 2001, and Giga Information Group advised companies not to choose an ASP too early for the same reason.