The Future Looks Bright for ASPs

The positive ASP hype is long gone; the negative implications are fading away. And the future for ASPs and application management service providers is looking bright, according to two reports by market research firm IDC.

In Worldwide Application Service Provider Forecast, 2002- 2006: The Future of Software as a Service IDC reports that the economic slowdown resulted in lower-than-expected growth for the ASP market; however, it expects steady growth over the next four years with the industry reaching nearly $20 billion by 2006.

“Now that the days of ASP buildup are over, there is a ‘re-discovery’ of the merits of ASP including the business benefits that are already being enjoyed by current ASP customers,” said Jessica Goepfert, program manager, ASP, BSP and Application Management Services.

IDC also cites strong growth in the market for application management outsourcing. This segment, IDC says, has received increased attention recently as traditional ASPs begin to offer management services and as independent software vendors (ISVs) also introduce application management services. Goepfert points to USi’s recently announced USiRemote as an example of how ASPs are expanding their offerings to include application management. “It’s a good foot in the door with companies that aren’t ready to give up keeping the application on their servers.” (See USi Goes On Location with USiRemote.) Goepfert lists SAP and Oracle as examples of ISVs that also offer application management services.

IDC defines application management as follows:

“Application management refers to the ongoing support of an application or system of applications.
These applications can be custom-built to suit the needs of the client organization, packaged applications, or a combination of third-party products and customized components. At the most fundamental level, AM’s core value proposition is the maintenance and daily operation of business applications.”

According to IDC, the application management market was $11.1 billion in 2001. In its report, Worldwide Application Management Forecast and Analysis, 2002- 2006, IDC predicts sizable growth over the next four years and estimates that the market will reach $21.8 billion in 2006.

“Spending on ASP and application management services continues to increase as companies of all sizes look to outsource tactical maintenance and management activities in order to focus on strategic activities,” said Amy Mizoras, program manager, ASP and Applications Research. “A critical mass of ASP adopters are helping that industry move into the mainstream, while an influx of new suppliers such as application vendors is reinvigorating traditional AM.”

In another piece of good news for the ASP market, the Information Technology Association of America (ITAA) today released results of a survey of 80 ASP customers conducted this month. More than 60 percent of respondents indicated that the level of service provided by their a ASP was either “high” or “extremely high.” (See ASP Clients Rate Outsourcing Benefits.)

“This survey shows that ASPs deliver a very strong value proposition,” said ITAA President Harris N. Miller. “The data also indicate that customers know what they want from their applications service provider and, based on the high marks tallied here, they are receiving it.”

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