The global application service provider (ASP) market will be worth $7.5bn by 2004, but will account for less than one per cent of total IT industry spend.
Clare Gillan, group vice president of applications and information access research at analyst IDC, predicted this week that the ASP market would enjoy a compound annual growth rate of 91 per cent.
Speaking at IDC's Directions 2000 conference in San Jose, California, Gillan said much of the demand for such services will come from the professional services, insurance, telecoms and media sectors. Startups would be the early adopters, she said.
"Buying ASP services is not about reducing IT costs, but making IT more available to those that lag in IT adoption. Return on investment is the issue, not total cost of ownership," she said.
She predicted that collaborative applications, sales and marketing and human resource packages would be the most popular software for rent. ASPs will offer a suite of applications rather than just focus on one, she said.
But Gillan warned would-be ASPs to formulate their strategies around vertical industries and application types and to set realistic goals because the market is relatively small.
Despite apparent demand for rentable applications, she does not believe the death of the software industry is imminent. Rather, she said, it is likely to double in size because the ASP market will represent a new sales channel for developers.
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