IDC: ASPs learn from past mistakes

A new breed of ASPs (application service providers) that have learned from the mistakes of their predecessors is emerging and offering better service to users, according to a new report published by International Data Corp. (IDC).

Instead of attempting to offer via the Internet traditional client/server applications that were designed for corporate networks, the new ASPs often build their own applications to suit delivery over the Internet, said Jessica Goepfert, a senior analyst with IDC's application service providers research program who wrote the report.

The new ASPs are thus in a better position to offer scalable and customizable applications that are easier to integrate with other systems.

"A lot of the applications that the first generation of ASPs were offering were traditional client/server applications not built for the ASP delivery," she said.

Two examples of this new type of ASP are Upshot Corp. and Inc., Goepfert said.

It pays to succeed in this emerging, fast-growing market. Worldwide spending on ASP services amounted to US$1 billion last year, up from US$300 million in 1999, she said.

The first-generation ASPs that are in most trouble are those offering complicated enterprise applications from third-parties, such as SAP AG's ERP (enterprise resource planning) applications, she said.

"I think the ASPs that offer smaller and less complex systems," like Microsoft Corp.'s Office package, that are easier to deliver over the Net, are not doing so badly, Goepfert said.

One struggling first-generation ASP is Inc. The company is putting its operations in Europe and Asia on hold to concentrate on making the U.S. operation profitable.

"I don't think our problems are depending so much on technical issues," said Robert Ziegler, who established's operations in the U.K. and is now closing it down.

"The big problem is trying to get customers to use the service," he said. "It's issues like security people are worried about."

Potential customers are wary of using ASPs because a number of legal and accountability issues still need to be sorted out, he said.

"A lot of companies are worried about being the guinea pigs," Ziegler said.

Potential customers worry about who will respond if the ASP goes out of business or if an application malfunctions.

"What happens if a customer's database is on our server and we go bankrupt? ... (And) if something breaks down, is it the Microsoft application, or the Adobe application, that is causing it," or is it the application service provider's fault?, he said. is addressing this problem by relying on software resellers to educate the customers, said Ziegler. "We need the companies to understand that our services are safe," he said.

IDC is a division of International Data Group Inc. (IDG), the parent company of Computerworld.