Magazine Article | September 1, 2000

ASP Market Gains Momentum

Source: Innovative Retail Technologies

There are plenty of naysayers – including my mother – when it comes to application service providers (ASPs). But, they can't deny for much longer that the ASP model will change IT.

Integrated Solutions For Retailers, September 2000
My mother has a Type A personality. She always has to be in control and do things herself. That's pretty tough when you help run the information technology (IT) operations for a multimillion-dollar manufacturing facility.

So, when I introduced her to the concept of an application service provider (ASP) for her company, she didn't warm up to the idea. (An ASP rents software to a customer. The application is delivered through the Internet. Customers pay a regular fee to gain access to the software through an Internet browser.)

My mother's reservation about relinquishing control over her company's software is common in the IT industry. However, a number of outside factors are still driving rapid adoption of ASP services.

The Buzz About ASPs
Evidence that the ASP concept is taking hold of the IT marketplace can be found everywhere. At a Microsoft event, President and CEO Steve Ballmer recently said that in 10 years all software will be provided as a service. Analysts are making similarly bold predictions about the ASP marketplace.
  • The Kennedy Information Research Group predicts the ASP sector will enjoy a 59% compound annual growth rate through 2004. ASP revenues will grow from less than $1 billion in 1999 to $9.7 billion in 2004, according to the study.
  • Forrester Research makes similar predictions. Their analysts forecast that the ASP market will reach $6.7 billion in the next two years.
  • The ASP Industry Consortium continues to grow exponentially. This organization had 25 members at its inception in May 1999. By July 2000, the membership base had grown to 400 companies (see July issue, p. 16). Now, the number of members is well over 600 companies.
These statistics are staggering, considering that 10 months ago, 42% of IT professionals were not familiar with the term ASP. This data was drawn from an IDC poll of 1,000 randomly selected IT professionals (December 1999). Only 5% of those who recognized the term had detailed knowledge of ASPs. Much like my mother, many IT professionals thought ASP meant "automatic software provider."

IT Labor Shortage Makes ASP An Attractive Option
Analysts attribute one of the primary drivers of ASP market growth to IT labor needs. Presently, there is not enough qualified labor to meet the growing IT requirements of businesses. Gartner says IT professional services will more than double between 1998 and 2003. As a result, IT outsourcing will also double in that same period. By 2002, Gartner says 50% of all IT operations for $1 billion and larger enterprises will be handled by contract IT workers.

Growing IT needs will lead many ASPs to expand their business models. A typical ASP provides communications services, software upgrades, and storage and server maintenance. Ballmer predicts that ASPs will add new services and become more heavily involved in the integration of applications.

All types of industries can benefit from the ASP model. But, the centralized structure of the retail business makes it an ideal market for ASPs. Integrated Solutions for Retailers wants to provide you with information about ASPs. Check out ASP articles in this issue on p. 48, 63, and 80 and in future issues.

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