IDC: ASP Sector Will Not Rock Software Market

The emergence of ASPs (application service providers) will have a greater impact on the services market than on the software vendors' market, according to Wilvin Chee, market analyst for cross product research at International Data Corp. (IDC).

At an IDC presentation last week on the ASP phenomenon in the Asia-Pacific region, Chee projected that ASPs will garner only 4 or 5 percent of the total packaged applications software market in ASEAN (Association of Southeast Asian Nations) by 2004.

"The ASP sector isn't likely to rock the software market as we thought it would," he said, "And as a business service, it will provide a more lucrative business for service firms and network infrastructure providers."

Chee identified service integrators, consultants and outsourcers as one group of emerging ASP players in addition to network providers like the telcos and Internet service providers. A third group, application vendors like Solomon Software, are also extending their offerings online as they move into the territory of the ASP pure plays.

Enterprise Resource Management (ERM) software leads the ASP offerings with 57 percent of the pie. Because of the hefty costs involved in ERM implementations, many businesses are attracted to the ASP model for these solutions, said Chee. However, IDC predicts that the vertical solutions will experience greater adoption in the coming years, even surpassing ERM and collaborative applications.

"Knowing one's business is important criteria among users. Many are increasingly turning to ASP vendors, especially those in the niche and vertical market because they feel that these vendors understand their business," Chee explained.

Quality of service and pricing also rank high in users' ASP selection choice. Although there are still more local than global ASP players in the Asia-Pacific region, the outlook remains positive. Revenue growth for the period between 1999 and 2004, will increase at an approximate CAGR (compounded annual growth rate) of 160 percent in ASEAN, 150 percent in Australia and New Zealand, 250 percent in Greater China, according to IDC's market forecast.

Korea, however, will have lower revenue growth at 100 percent as the country is just beginning to adopt ASP, and will take a while before it catches up, Chee said.

"ASP is really a business service, and not a technology service. Vendors should therefore take time to find the right partners, to select a niche market to target quality offerings instead of aiming to be in all segments of the market. In this space, having domain knowledge counts. Players with credible track record and strong reputation will stand out in the future," he said.

Chee noted that the ASP market caters predominantly to the small and medium enterprises.

"Eighty percent of ASP users are from the SME sector," Chee said.

"Not many large corporations want to go into this market for two reasons. First, they already have their own IT infrastructure in place. Second, the ASP market is new and they aren't keen to jump into it until issues such as integration and scalable are resolved," he added.

Industries fuelling the demand for ASP throughout the Asia-Pacific, include manufacturing at 29 percent, business and communication service at 19 percent, retail and wholesale at 14 percent, and banking and finance 9 percent, according to IDC's estimates. The adoption in the manufacturing sectors, which typically have low level of IT utilization, is driven primarily by China and India, said Chee.

On the other hand, business and communications, retail and wholesale, and banking and finance are driven by countries such as Singapore, Malaysia, Australia and New Zealand.

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