Small businesses will be the heaviest users of rentable applications, but collaborative software will be the most popular among businesses of all sizes.
According to two separate reports on the application service provider (ASP) market released this 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.
Figures from IDC estimate that worldwide spend on ASP services will grow at an annual compound rate of 92 per cent from 1999 to 2004, becoming a $7.8bn market in four years. The increase is attributed to the entry into the sector of industry heavyweights such as AT&T, IBM, Microsoft and Sun Microsystems.
But 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.
Amy Mizoras, an IDC analyst, said: "Because they are network centric, collaborative applications are well suited for 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 will 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 that ASPs should partner with telcos to sell their services because small businesses trust their carriers, especially their local operators.
Although Cahners In-Stat does not provide figures for the ASP market as a whole, 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 claimed.
Although 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, corporates will begin to regain control of all their software by 2004, she added.
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