Application Service Providers (ASPs) have yet to convince the UK's smaller firms that they should adopt their model of leasing IT applications.
The Durlacher Quarterly Internet Report reveals that take-up among small to medium sized enterprises (SMEs) lags far behind the corporate sector.
Just 29 per cent of SMEs said they had, or would, consider outsourcing any of their applications compared to 40 per cent of corporates. Only eight per cent had already done so, compared to 21 per cent of larger firms. This is despite consistent marketing of the ASP model as the best way to reduce software costs for SMEs.
Durlacher's report said that the key barriers to entry were focused on the issues of security, cost and reliability.
"Security issues centre around the area of data integrity of a third-party hosted solution rather than the availability of technology that addresses security, although both will be important moving forward," the report said.
"Although the ASP model is built on the premise that it will reduce cost, pricing and billing policies are still under development and need to be clarified in order to drive demand," it added.
ASPs have come under fire in recent weeks from analysts. Giga Information Group warned earlier this month that firms should refrain from making a commitment to any single ASP as a wave of consolidation will soon hit the industry. Two weeks ago, Gartner predicted that most ASPs would be dead within three years but did predict that the value of the European ASP market in 2004 would be around $7.5bn.
However, Durlacher believes the model itself will eventually be more widely adopted with the advent of low-cost, always-on, high-speed internet connections, and major initiatives from Sage, Siebel and Microsoft.
"Durlacher has always maintained that the SME sector is the sweet spot for the ASP model but that mainstream uptake will take time. We believe metered access charges form a major component of today's cost, in a sector still dominated by dial-up [internet access]," the report said.
"Growth in technologies such as asymmetric digital subscriber line will be a key determining factor in the future growth of this market. In addition, major initiatives from well known players in the software, network and system integrator sectors over the next six to 12 months may start to help address the concerns around ASP as an untested model," it concluded.
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