By 2003 Gartner predicts the application service provider (ASP) marketplace in the Asia-Pacific will be worth $US2.5 billion and a third of all software deals in the enterprise market will be delivered ASP style. However 60 per cent of players in the current market will not be in existence.
Rolf Jester, regional director and chief analyst for the IT market for Asia/Pacific for Gartner, insists the reasons for the predicted high rates of failure are very simple.
"The number one reason why [ASPs] fail is that people in the main have an incorrect understanding of the business model they are getting into," Jester said.
"Literally everybody I have spoken to in any business loosely associated with IT has said 'we are an ASP'. They're in all sorts of businesses and many of them do not have the faintest idea how they are going to make money out of this, or how the model is going to work for them.
"More importantly they haven't even thought through exactly who their target market is."Jester said it is just normal business practice to know who your target market is before setting up a business, and that it is important to have a brand that users can trust; "that is probably the biggest failing of most ASPs".
"If they do knock on the doors of users, the user is going to say 'who are you' and 'why should I trust you with my business information'."Putting together an ASP also requires really solid partnerships. Jester said there has to be partnerships between a number of players, "someone to provide the network services, the software, hosting services, and the consulting or implementation services." Wrong partnerships or unstable partnerships that don't last are the second major cause of failure among ASPs.
Another reason why partnerships are so important for success of ASPs, and a third reason for the downfall of many ASPs concerns network infrastructure, which can vary from country to country and between regions within countries.
"[Infrastructure] is terrific in Sydney, but if you get more than 100km out of Sydney you've got enormous costs of telecommunications. Immediately you've got issues to deal with; is this viable from the user's point of view, will the users be able to afford it, will the service providers be able to do it, and will the ASP be able to guarantee high availability on the network."