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The essential guide to IT transformation

This article appeared first in Direct Access, a Microsoft UK online channel magazine.

There's been a lot said about the application service provider (ASP) market over the last 12 months - how it was going to explode and that anyone who's anyone in the IT industry would become involved in it. But there has, to be fair, been very little concrete evidence that the predictions were coming true. So does this mean the ASP market was just one big marketing mirage?

Cynics could be forgiven for adopting that view, but the reality - as is often the case in the IT industry - is that there is a time lapse between announcement and execution. This is an accepted part of the evolution of new products, and it's the same for developing markets.

One of the world's largest research and analyst companies, IDC, has just published a report on the ASP market in Europe called 'Western European Application Hosting 1999/2004 Markets and Trends - A Software Vendor Perspective'. Among its predictions, IDC states quite plainly that "the European market for ASPs is taking off".

If that's the case, what are some of the key factors driving the long awaited growth of the ASP market? IDC has identified three key market drivers.

First, it sees the growing improvements in the technology needed for networking and the Internet as a critical factor. As these technologies become more reliable and more pervasive, a growing number of businesses will rely upon them more heavily. Naturally, any perceived weaknesses in the IT infrastructure will undermine users' confidence, so much of this battle is about improving users' views on heavy reliance on IT.

Sticking with the theme of perceptions, the second factor has to do with the way a budding ASP must understand the opportunity to boost their business via this model. This, IDC says, is all about economies of scale. As an ASP you are able to adopt a one-to-many business model - the potential benefits of which are significant. Not only does the ASP get to enjoy cost savings associated with decreased overheads, but these are savings that can be translated into real competitive advantage, thereby making your proposition even more compelling to your customers.

The third factor is something IDC calls "Innovations in application architecture". It is now increasingly common to have applications shared across a network, thanks - in part - to the growth in the client-server model in the IT department of the 1990s. This has led to general improvements in the way applications can be hosted and delivered remotely without compromising productivity.

These three major factors will combine to push the ASP market on to the corporate IT agenda over the next five years. The market was worth just $15 million in Europe last year, according to IDC's figures. But by 2004, this will have shot up to $850 million, with a rapidly increasing number of suppliers wanting a piece of the action.

From the IT user's perspective the ASP can provide a number of very basic functions which can remove a number of headaches - and potential headaches - in one fell swoop. Not least of these is being able to delegate the need to stay on top of increasingly complex and intricate applications which your business relies upon. And if someone else has responsibility for monitoring and managing the licence end of your use of software applications, well... that's one less nightmare scenario to keep you awake at night.

On the subject of applications becoming more complex, IDC vice president of European software research, Anne-Lise Wang, says: "This evolution requires more people, planning, and ongoing management, especially for mission-critical applications that must maintain a high level of availability."

The killer wages of IT-enabled staff is something very few end user organisations want to have to live with for the long term - the ASP can, again, make a genuine impact on the users' bottom line.

But being an ASP is not the same as being one of the more traditional outsourcing companies. Rather than having some of its personnel based at a number of individual clients' sites, the ASP will roll-out a specialised and streamlined model to a number of clients staying very much a remote operation. Specialising in the provision of applications, such as ebusiness tools, will be a way for the ASP to differentiate themselves in the market and address a clear customer need.

As with any emerging market, those that jump in early face not insubstantial risks, but those risks are offset by the potential for high rewards. Despite its slow start, the indications are that the ASP market - far from wilting away - is about ready to wake up. ®

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