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The Future of ASPs

📄 Contents

  1. Status by ASP Category: Personal, Collaboration and Enterprise
  2. What about Salesforce.com?
  3. What Can You Expect this Year and Next?
  4. Growth Is on Its Way
Despite the initial turbulence that the ASP industry has been through, there's continual growth for this approach to delivering software. This article points out predictions for the ASP model as a distribution channel in the future, and emphasizes the fact that Service Level Agreements (SLAs) are just the beginning of a true partnership in this arena.

With what has been a decidedly turbulent year since the critical mass of media coverage and endorsement of the Application Service Provider model began, the concept of the ASP today finds itself in the middle of both a unique consolidation and rapid maturation toward being a distribution channel. Now that companies are looking at their IT investments with greater precision and with much more of an emphasis on ROI, the steady progression of the ASP model persists. Just as the days of disintermediation brought on by the direct channel are gone, so are the dire predictions of all other forms of software being dead due to the ASP model.

Ironically, the very attributes of the high-growth businesses that enabled the ASP arena to get started in the first place are now being applied to application service providers. These attributes include delivering exceptional service, strong product development expertise, and most important of all—and the reason so many ASPs are now extinct—vertical domain expertise. It's ironic that the companies experiencing the greatest growth in the last three years, needing the concept of an ASP to come to their aid, are those with the strongest knowledge of vertical segments. ASPs standing today are those that figured out that vertical domain expertise makes a huge difference in the capability to execute. As the consolidation of ASPs continues, the companies that have market sense are either going to the bandwidth aggregators (Qwest, AT&T, and DoCoMo are among them) or taking the route of being an add-on service for these bandwidth providers. Other ASPs are moving in the direction of being even more strongly vertically oriented. There are also those companies, just emerging from the sell-side and buy-side areas of supplier enablement, that are using the ASP model as a component of their distribution strategies.

Status by ASP Category: Personal, Collaboration and Enterprise

Less that 12 months ago, many companies claimed that their personal ASP applications (including delivering word processing, presentation software, and low-end databases) would dominate the ASP industry by now. These personal ASPs, many of them out of business, are testaments to the need for those ASPs to have a vertical domain expertise up and running quickly to get traction in their chosen markets. In effect, these personal ASPs were intent on taking on Microsoft's strength in the Office marketplace. The result has been that many companies are now exiting this arena of the ASP marketplace, and my prediction is that personal ASPs will hover around 7% of the total ASP marketplace revenue spending worldwide for years to come. These applications simply do not scale well for multienterprise integration, and, when competing against a strong horizontal brand such as Microsoft, the advertising budget for Word alone would dwarf the entering competitor's total company budget.

What's been surprising about the year has been the sudden surge in interest for collaborative ASPs. Many of these ASPs have a strong vertical orientation; and also have applications that include groupware, email, document management, unified messaging, and conferencing. In addition to the vertical domain expertise, ASPs in this arena also have a strong focus on network-reliant applications and network expertise. Companies such as Interliant and ManagedOps.com are examples of ASPs in this arena.

The largest proportion of ASP sales continue to be in the enterprise segment of the marketplace, typically where the customer is a member of the Global 2,500 marketplace. Qwest, Sprint, and other telecommunications companies are getting the majority of business in this area because their broadband expertise makes the addition of an ASP services more of an add-on service over a purely technological offering.

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