The complexities of data and application integration make it the most significant stumbling block as heavyweight platform vendors make a move into application hosting.
Although the approaches vary, industry observers say investments by Oracle, IBM, Microsoft, and Hewlett-Packard will create an infrastructure to integrate outsourced and in-house applications. If their efforts succeed, these companies have a shot at convincing large corporate users to adopt the software-as-service model.
Many users, however, are still more than a little reluctant to commit to a hosted strategy. That reluctance is triggered in part by the financial instabilities many ASPs, ISPs, and other online service providers have shown in the past year.
"It just doesn't make sense to outsource large applications when I have to get ERP [enterprise resource planning] from one ASP and CRM [customer relationship management] from another, and the data can't be integrated because it's housed by two competitors," said Pat Elwood, advanced technology consultant at Hertz, in the US. "If I could have all my applications integrated, that would make the prospect more attractive."
Still, vendors such as Oracle, IBM, and Microsoft are insisting that software services are the way of the future and, in essence, betting their businesses on it.
Platform providers are emphasising integration as the cornerstone of their strategies.
With so few ASPs and other providers able to establish a profitable business model, some observers believe a handful of the platform vendors could step in and assume the role of a one-stop shop, including the role of an ASP itself. These industry heavyweights can withstand significant losses to establish that position while users and service providers go through the rocky transition of finding the right business model.
"Someone like Oracle is in a unique position of being able to risk injury to their current business while they establish a new business. They might be able to make a business out of their own hosting as well as selling hosting to service providers," said Dana Gardner, an analyst at Aberdeen Group.
Integration is an important part of Oracle's plan to move toward being able to host all its offerings. Oracle will host applications and let third-party ASPs host its applications through a partner program called iHost.
"The focus of our partner program has been on ASPs that add value to our applications, instead of just hosting them raw the way we do," said Gary Bloom, executive vice president at Oracle.
IBM is also pushing application integration. Officials believe Big Blue has established a secure position against its major competitors in the software-as-service markets on the strength of what it calls "e-infrastructure". This collection of middleware products, such as MQSeries, CICS, Domino, and WebSphere, integrate systems and automate transactions over the Internet, said Scott Hebner, director of e-business for IBM's software group. IBM has cast itself as "arms supplier to ASPs", meaning it will outfit ASPs with the necessary hardware and software infrastructure.
Application integration has made its mark on Microsoft. Rather than becoming a hosting service, Microsoft is aiming to provide ASPs with a complete platform, based on its .Net strategy of the Windows 2000 varieties and the Enterprise Server family. The next generation of the Web will take "advantage of standards like XML and SOAP [Simple Object Access Protocol] to integrate applications together," said Barry Goffe, group product manager of Microsoft's .Net developer and enterprise group. Like Microsoft, HP is developing an e-services development framework.
At this point, analysts believe that none of the platform suppliers has a major advantage quite yet.
"No one has an across-the-board solution. The vendors are just beginning to explore this. You see start-ups like Loudcloud which sees opportunities to get involved in this because the major vendors don't have a delivery mechanism for it," said Richard Buchanan, an analyst at Meta Group.
Meanwhile, application hosts themselves are trying to add on integration services.
"Some ASPs are putting together an equation of offering application integration with external services [such as access to market exchanges] that will serve the company from the front office to the back office," said Robert Anderson, an analyst at Gartner.
Until any shakeout occurs, the market is tough to understand.