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ASPs: The next great thing?

• By Michael W. Bucken
• May 30, 2001

We are always looking for the next great thing. That there haven't been many next great things has never stopped us. And it's unlikely it ever will.

According to several prognosticators, investors and entrepreneurs should be funding and starting application service provider (ASP) businesses … and the sooner the better. In fact, no less an expert than Oracle's Larry Ellison has predicted a "tectonic change" for corporations from buying software to leasing access to applications online. While Ellison's brash predictions don't always come true, he does know what's hot.

It sounds good. Turn over development, deployment and maintenance of apps to third parties and concentrate on core competencies. It also has a familiar ring to it, a lot like the service bureaus that once ran applications on mainframes for firms of all sizes. Yet once systems became small, and cheap, enough, corporations brought the function in-house in order to develop proprietary apps that could provide a competitive edge. The result was that the service bureau became little more than a memory. Today, the delivery potential of the Internet, coupled with the high cost of internal development and of buying packaged applications, is making the model attractive once again.

Indeed, enterprise application leaders like Oracle, SAP and PeopleSoft, as well as several top consulting firms are offering or planning to offer ASP-style services, presumably as a method for penetrating so-called mid-market companies that can't afford the cost and long implementation period for packaged ERP applications. Start-ups touting new technologies are entering the fray at breakneck speed. The ASP Industry Consortium, formed last May, now counts more than 200 vendor members, each claiming to offer some kind of ASP products and/or services. Industry analysts are projecting explosive growth, from minuscule numbers today to tens of billions of dollars before the end of the decade.

It all sounds too good to be true. And perhaps it is - to date at least. For example, IT organizations must be careful about turning over company information to outsiders. It could force companies to depend too heavily on third parties to run the business. Remember, there were very good reasons companies turned away from the service bureau model all those years ago. IT organizations should now look beyond any immediate gains from an ASP contract to focus on how a shift to outside control can affect the business over the long term. There is no question that the right ASP agreement could help an organization. In turn, the wrong one could hurt a business.

This month, writer John K. Waters looks at the status of the ASP market, and what type of user can best benefit from the service over the short and long term. We think it's an interesting read on an emerging market that could significantly affect how development managers do their jobs.

Best regards,

Michael W. Bucken