Application service provision (ASP) has been over-hyped and could take a further two years to take off in earnest, according to internet and telecoms analyst Schema.
During the dotcom boom early last year, analysts had predicted that the ASP market would be worth anywhere between $7.5bn by 2004, according to IDC, and $82bn by 2005, according to Analysys.
However, Schema now argues that these predictions were based on an optimistic definition of the market, and misunderstandings of how the value chain around the provision of applications over the internet would develop.
Lisa Danielsson, a consultant at Schema, said: "The market has not developed as quickly as predicted. Investors have become more cautious, and the ASP model has been found to be more complex to run and generate revenue from than most had anticipated."
"Whilst in theory the ASP model makes good sense, in practice there are currently a large number of significant barriers that need to be removed before the market can take off properly," she added.
According to Schema, prospective customers don't see the ASP business model as relevant to their own situation, while those that do have further concerns.
Prospective customers may be reluctant to outsource applications they see as crucial to their business, especially to a startup which may go bust within a year, Schema said. They may also want a level of service that companies using the internet to deliver cannot guarantee, or may simply not trust the provider's security levels, the researcher added.
Even if the provider meets these expectations, it may still fall down elsewhere. Schema said they may not offer enough software suitable for web, rather than local area network, distribution, or may not be able to handle licensing to a prospective customer's requirements. Whether they are able to customise applications to the desired degree, and have sufficient infrastructure to support the applications offered, may also be in question.
Finally, ambivalence on the part of resellers who view providers as a threat, and consolidation within the ASP market itself, may be slowing down its development.
But Schema believes that, despite the unexpected complexity of the ASP model, it will eventually take off because of some overall market trends. These include a shortage of IT service skills at a time when more ebusiness processes are being developed, ever-decreasing software release cycles, increased acceptance of outsourcing and user desires for simplicity and cost cutting.
"The ASP market in Europe will ultimately be large and will develop first among corporates and subsequently among smaller companies as economies of scale kick in. Major market growth is at least a year away, more likely two," said Danielsson.
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