Observers expect ASP shakeout

Following historical patterns in the adoption of new technology, the ASP market will undergo a painful shakeout in the next year, industry observers said at the ASPWorld Conference & Expo held in San Jose, California recently.

Many of the ASPs currently doing business will not survive, according to Terrence Ozan, director of global sectors at Virginia-based consulting firm Cap Gemini Ernst & Young.

"There are hundreds of companies calling themselves ASPs - hardware and software vendors, telcos, outsourcers, consulting firms - all offering different things, from Web hosting to applications management," said Ozan, a keynote speaker at the conference.

But many will be gone within a year. "The good news is that the ASP market is too important to go away; the bad news is much needs to change for ASPs to be successful," Ozan said.

Dozens of new specialised ASPs have been formed but many are struggling financially. This instability is one reason large corporate customers are not jumping into application outsourcing, analysts said.

"No [ASP] has proven they have a durable business model. Their benefit to users is clear, but no one has come up with a way to provide these services cost-effectively," said Dana Gardner, an analyst at Aberdeen Group. "What is needed is a maturely developed service provider industry in order for the big [corporate users] to move to that model."

Market research company International Data Corp (IDC), made available a bulletin at the conference that said an "inevitable consolidation" in which "hundreds of today's ASPs won't survive to see their first dozen customers" will occur.

But IDC said the ASP market, which showed revenue of $US300 million in 1999, will reach $7.8 billion by 2004.

To survive in the future, ASPs will have to refashion their operations, Ozan said. "The market will require ASPs to transform their business.

"The ASP market will mature to meet the needs of high growth and large enterprises," Ozan said. "[Many ASPs] will move beyond being a technology utility to be a single-source provider of assistance and capability in business operations and integration."

Platform vendors eye software services

Although the number of companies calling themselves ASPs has exploded, IT platform providers are building the foundation for developing and integrating these Web services.

Oracle: Revamping its core database to offer hosted ERP application services; Business OnLine division hosts applications.

Microsoft: Creating .NET, a programming and middleware framework for developing Web services.

IBM: Offering application hosting through professional services group; Providing infrastructure, notably integration middleware and hardware, to ASPs.

Hewlett-Packard: Building E-speak, a development framework and middleware engine for finding, publishing, and integrating "e-services".

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