This year the buzz in the US has surrounded the potential of the applications hosting market. Until BT formally announced the launch of its hosting service last month there had been little evidence of that excitement coming to the UK.
The market for high-end application service providers (ASPs) will reach $2 billion (#1.2 billion) by 2003, according to analyst group IDC, but research to be published later this month has found little evidence of applications hosting activity in Europe as a whole and the UK in particular.
"The industry is very embryonic. We found some activity around collaborative applications like Lotus Team Room, and in Denmark there is a consortium of health clinics sharing a database remotely hosted by IBM," commented Euan Davis, research analyst at IDC, who conducted the European research.
"A lot of vendors said they were doing things, but we found little evidence of that in Europe. The biggest conclusion we came to was that it remains a vendor-led initiative."
Most activity is still restricted to the US market, which is believed to be up to two years ahead of Europe in technology adoption. Davis said that there is no doubt that the market will also take off in Europe eventually.
Application hosting presents an attractive proposition for customers, he said, particularly those who could not afford bespoke enterprise resource planning (ERP) implementations.
IDC expects to see alliances spring up between application vendors, like SAP or Baan, hosting providers, like EDS or Andersen Consulting, and carriers, like ISPs or telcos, to provide the most attractive and easy to use service.
Unlike in-house systems, hosting allows customers to switch between services almost at will.
EDS and IBM Global Services have been pinpointed by IDC as two companies to watch in the ASP market. Both are key players in the US, but neither, so far, has any plans for UK trials, which neither considers to be a pioneering market place.
In the US, EDS is working with SAP to provide hosted applications. "We are monitoring the situation in the US very carefully. Potentially there is a substantial market for these services in the UK, but the UK market is very conservative and relatively unsophisticated in the way it purchases IT services. Once we have proven business metrics (from the US trials) we will start introducing it to the UK market," said Rob Wirszycz, director of marketing strategy at EDS.
IBM Global Services has been working with applications hosting for two years. There are now trials underway with 45 to 50 customers worldwide, in conjunction with application vendors like Systems Union, Oracle and SAP. IBM's activity is concentrated on places where Internet acceptance is high, like North America and Scandinavia, and on emerging markets, like South America and Eastern Europe, where companies of all sizes lack the finance to implement their own ERP systems. But "there are no immediate plans to bring it to the UK," said Kathy Dodswroth-Rugani, director of rental applications business at IBM Global Services.
However, IBM has introduced a project manager to gauge potential of the UK market.
Oracle, on the other hand, believes that the UK market is ripe for applications hosting. The company has been hosting its own applications service Oracle Online in the US, over USWest's infrastructure, and will introduce trials with UK customers this year. But that service will not necessarily be hosted in the UK.
"It physically does not have to be in the UK, it could be in Portugal," said Neil Brookes, marketing manager for applications at Oracle. "Its all about economies of scale, putting a lot of data centres in one location."
Rival ERP vendor JD Edwards will announce its plans for entering the UK hosting market soon.
Not having the luxury of choosing between continents, BT could only offer such a service to the UK market. The company announced last month that it would be providing companies of 20 to 500 employees with the opportunity to rent their financial and payroll and subsequently sales force automation, human resources, customer relationship management and logistics applications on-line, hosted by BT server farms.
BT's competitors do not doubt its ability to create a market for hosting among the UK's small and medium-sized businesses. "It has clearly done the research and learnt from its trials, (which is) what we are learning in the US," said Wirszycz.
If BT is successful in creating a market in the UK, then EDS hopes to take advantage of that.
One of the challenges to BT will be convincing businesses that hosting is safe and economical.
Mid-sized businesses have never understood the hidden costs involved in IT purchases, according to John Tate, managing director of Tate Bramald Consultancy, and are in danger of undervaluing the benefits hosting offers.
Nor does he think that off-the-shelf versions of ERP packages are appropriate for this market.
"I don't see a role for ERP software packages in the mid-market. It is a vastly overpowered tool with huge service and maintenance costs," he added. Tate believes that these companies would be better served by traditional mid-market vendors, like Systems Union, Pegasus or Sage.
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