Getting a Grip on ASPs.


Census 2000 pales in comparison to the frantic efforts of consulting and trade groups to survey potential customers of application service providers (ASPs). New reports usher forth daily, and even the most measured of them foresee a strong demand for ASP services as companies grow more familiar with the concept.

By tapping an ASP, a company can rent software applications on a per-user per-month basis (there are other options as well). Almost unheard of two years ago, the ASP approach is now "very familiar" to one-third of the 1,500 IT executives surveyed by the Information Technology Association of America (ITAA), a Washington, D.C.-based trade group. Another 40 percent said they are "somewhat familiar" with the concept, and of the nearly 300 respondents who are now using an ASP, almost two-thirds said their company would obtain additional software functionality this way.

That jibes with new research from Ovum Ltd., which sees the ASP market growing from $1 billion last year to $44 billion by 2004. In some recent focus groups, Ovum found the potential customer base for ASPs runs from small and midsize enterprises right up to the largest corporations. The former are attracted by the ability to rent software they can't afford to buy; the latter are eager to escape the headaches and expense of maintaining, distributing, and upgrading nonstrategic applications.

Convenience may matter even more than price. While Zona Research Inc. found cost of ownership the leading reason to go with an ASP, time to market and the ability to devote resources to more-strategic matters were almost as important. "We can double a customer's capacity in an hour," says Glen Reinus, vice president of corporate business for WebEx Inc., an ASP that makes real-time interactive meeting spaces available on the Web. "It's our business. We're focused on it."

Potential customers still have questions, however, about costs and service levels. Ovum analyst Roger Walton says that while ASPs routinely claim to save customers about 30 percent when cost of ownership is measured over three years, "that really depends on whether it's a new application or whether you're shifting an existing application from the customer's site to an ASP." The latter savings, he says, are often far less than 30 percent.

As for service, the specter of accessing critical software over the Internet, which is hardly a model of consistently robust performance, may give some companies pause. WebEx, for example, operates its own network of servers because its real-time service requires superior performance. Other applications may work fine when accessed via the Internet, but analysts advise users to get firm commitments from ASPs on performance levels.

Despite some confusion in the market about just what an application service provider is, interest is growing. "Twelve months ago, we saw no demand," says Elizabeth A. Ireland, vice president of marketing for Extensity Inc., a maker of workforce optimization software in Emeryville, Calif. "Now we see it as a significant part of our business in the next 12 months."

So significant, in fact, that Extensity will offer two different ASP options: mid-size companies can rent the company's timesheet, travel, expense report, and purchase- requisition software from ASPs, while large companies can outsource directly with Extensity.

The buy-versus-rent decision requires a careful look at price-performance levels and future needs. Right on cue, new services--in the form of Web sites--have cropped up to aid companies grappling with such decisions.

Alentis Corp. ( is a self- described "match-making" service that lists hundreds of ASPs and helps customers find one based on their specific needs. "There are 5,000 companies claiming to be ASPs, which creates a lot of chaos," explains Alentis CEO, president, and co-founder Guenter H. Krauss. Alentis vets the information provided by ASPs before listing them on the site. Another service, ASPstreet (, also lists vendors and provides information about the ASP market, including plenty of survey results.

Importance of factors influencing the ASP purchase decision.

(Chart omitted)


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