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ASPs: Survival of the fittest

Analysts say to expect shakeouts, shifts in focus and discontent in the ASP market.


Analysts say to expect shakeouts, shifts in focus and discontent in the ASP market

by Lisa Rogak, contributor

The application service providers market is in trouble, and many are predicted to fail, analysts say. And while some disagree to the exact cause of ASP failure -- shoddy business models, market saturation in niche areas or spreading themselves too thin -- they do agree on one point: 2001 will clearly bring shakeouts, changes in focus, and discontent galore in this sector.

As a result, those IT managers and executives who are currently using an ASP or are considering outsourcing some responsibilities to one need to proceed cautiously. After all, ASPs -- an outside company that provides the software solutions and tech support for one or more corporate functions over a server or network -- provide valuable resources to departments and businesses that are overworked, understaffed and/or underskilled.

IDC currently forecasts over a billion dollars in revenue for ASPs in 2001 alone, so there are understandably hundreds of service providers all aggressively vying for a piece of this very lucrative pie, according to Jessica Goepfert, senior research analyst at IDC (, a research firm based in Framingham, Massachusetts. "Without a doubt, ASPs are in for an interesting ride in 2001."

Part of the problem, according to Audrey Apfel, an analyst of enterprise network strategies and Internet strategies at Gartner Group ( in Stamford, Conn., is that ASPs are trying to be all things to all people. She says they would do better to place their energies into focusing on one market segment or solution. "Either that, or they should bill themselves as an 'instant app,' a commodity service that's targeted to a specific business buyer." She cites and as two successful examples of commodity services.

Bill Martorelli, VP of e-services and sourcing at Hurwitz Group ( in Framingham, Massachusetts, couldn't agree more. "Those ASPs that can focus effectively on easing real customer pains will have the best chance of surviving," he says. However, he stresses that ASPs are like any business model, and that challenges present in any enterprise -- including performing adequate market research and enlisting channel partners -- need to be addressed with the same importance placed on providing good customer service. "Plus, there is not necessarily just one model that will survive. Some vertical providers will thrive, and hybrid ASP/BPO providers will succeed, but their success will have as much to do with their individual execution as their category."

What does this mean for IT managers who work with ASPs? Several things: First, don't put all of your tech eggs into one ASP basket. In other words, spread out your outsourced applications among a number of ASPs, not just one. Plus, even though you may be happy with your current ASP, it's a good idea to be aware of the other contenders in the niche before you need them, whether the ASP eventually downsizes or throws in the towel altogether. Also, talk with other IT managers to keep on top of rumors about impending trouble at certain ASPs.

In the end, it may be that the ASPs that are still standing a year from now may just be more successful at following the old business adage of treating each customer not as a cog in an ASP's well-oiled wheel, but as a separate component that requires unique attention. Audrey Apfel refers to it as mass customization.

"ASPs have to figure out how to deliver services that are specialized enough to feel unique to their customers, yet cookie-cutter enough to bring them economies of scale," she advises.

A tall order? Perhaps; but at the very least, the ride this year will be interesting.

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