Conflicting evidence emerged last week about how far down the road network managers are prepared to go in outsourcing vital elements of their infrastructures to Application Service Providers (ASPs). Although there has been a lot of noise and hype about the potential of ASPs, there is still some confusion about which users are most likely to benefit from outsourcing core networking and collaborative applications to them.
Many users remain unclear about what these benefits are.Small businesses will be the heaviest users of rentable applications, but collaborative software will be popular among businesses of all sizes, according to two separate reports on the ASP market released last week.
Small business will lap up such services because vendors provide them with access to software that may have been too expensive for them in the past, according to IDC.
The ASP market
Figures from IDC estimate that the worldwide spend on ASP services will grow at an annual compound rate of 92 per cent from 1999 to 2004, becoming a $7.8bn (£4.9bn) market within four years. The increase is attributed to the entry into the sector of industry heavyweights, such as AT&T, IBM, Microsoft and Sun Microsystems.
The market research firm believes that collaborative software will account for 50 per cent of ASP services revenue because these applications work better with that model. Such packages include email, document management, personal applications and groupware.
There are also claims that the ASP market in Europe, particularly the UK, will grow faster than in the US. The latest entrant to the market, Fujitsu Siemens, said that there were proportionately more small businesses here than in the US.
"There are more SMEs in Europe than there are in the US. The ASP model appeals to them as they often do not have any IT infrastructure," said Joseph Reger, vice president of strategic marketing at Fujitsu Siemens.
Amy Mizoras, an IDC analyst, said: "Because they are network centric, collaborative applications are well suited to the ASP model." The availability of personal software, such as scheduling systems from ASPs, is also likely to attract consumers.
"Growth in the personal ASP segment will be fuelled by consumers, and as more homes get broadband internet access, consumer spending on ASP services will increase," Mizoras added.
But Kneko Burney, an analyst at Cahners In-Stat, warned that ASP startups would have a tough time marketing to small businesses because of a lack of brand awareness. "The term 'ASP' is unfamiliar to small companies today and this puts providers at a huge disadvantage," she said.
Burney believes ASPs should partner with telcos to sell their services because small businesses trust their carriers, especially local operators.
Although Cahners In-Stat does not provide figures for the ASP market, the company believes that by 2004, 50 per cent of all US-based ASP spend will come from small firms.
"Small businesses have an increasingly difficult time competing and don't have time to manage their websites, but ASPs give them access to powerful infrastructures," Burney said. Large enterprises will initially be drawn to ASPs to try and catch up with IT developments that were put on a backburner because of the Year 2000 issue. But organisations will begin to regain control of all their software by 2004, she added.
Users questioned about ASPs are generally favourable towards the principle, but many want more assurances from the providers that a move to outsourcing their software hosting would be a wise one.
A user poll at an ASP conference organised by analyst Bloor Research last week found that 74 per cent of delegates were "extremely likely" to move to an ASP model within five years, with ebusiness and web-enabled applications being the most likely first moves.
Vendors need to convince users
But ASPs must first calm users' fears over loss of control and concerns about how easy it would be to bring a service back in-house if a contractual relationship failed.
Bloor said nine out of 10 people expressed concerns about whether ASPs would provide a secure disaster recovery service backed by guaranteed service level agreements. There are also concerns about how ASP services would be integrated with existing in-house systems and business or supply chain partners.
Jon Collins, a senior analyst at Bloor, said: "User organisations are not going to be rushed into an early adopter position. Vendors need to provide a realistic appraisal of how they plan to cope with far-reaching changes, before they will find a massive queue forming to take up their offer.
"ASPs are arriving by stealth with a lot of activity extending to the outsourcing of websites. As companies move from brochureware right up to high-level transactional services they are bringing ASPs into that development," Collins added.
According to Bloor, the most likely applications for ASP are ecommerce and websites, followed by packaged applications. Only 23 per cent of respondents saw legacy applications as suitable candidates for ASP.
Asked why they wanted to move to application hosting, respondents said the primary reason to outsource IT activity so that they could concentrate on core business functions. Delegates also quoted a need for greater scalability.
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