Survey: Few companies ready to outsource to ASPs

Although many companies may want to unburden themselves from maintaining software applications, the majority of large and small businesses aren't ready to turn over applications to a service provider, according to research released last week by Cahners In-Stat Group.

Users said that's because they have concerns about losing control over critical business applications and security and about having difficulty finding application service providers (ASP) that support industry-specific applications.

According to the survey of 228 companies that have more than 100 employees, 6.4% would consider outsourcing an application with an ASP. Of 118 firms with fewer than 100 employees, 12% would consider using an ASP.

"ASPs have only been a real topic of conversation for the last 18 months," said Kneko Burney, an analyst at Cahners In-Stat Group in Newton, Mass. "ASPs are asking customers to give them core business operations, but even the big companies are unsure of how to evaluate them."

Burney said both small and large firms preferred using old-line technology vendors such as Hewlett-Packard and IBM or telecommunications companies such as AT&T Corp. rather than ASP start-ups. She added that those looking for ASP services were most interested in support for vertical applications.

The opposite is also true: Some vertical applications are so specialized it's unlikely that ASPs would find the talent to customize and run them.

Greg Fowl, manager of information technology at Gate City Steel, said his firm fits that profile because the Indianapolis-based steel processor uses specialized software that is unique to its industry.

"It's very difficult in our industry to use outside folks," said Fowl. "If we found someone to support [our application], then an ASP might be an option."

Chuck Lewis, IT manager at Lee Supply Corp. in Indianapolis, said his firm also wouldn't use an ASP.

"The biggest thing is perceived loss of control and security," he said. "It would be something to look at in the future as ASPs offer more value-added services and as the market matures."

Still, Cahners In-Stat predicts the market will grow dramatically, from the estimated $10 million spent on ASP services by small businesses this year to $7 billion by 2004.

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