ASP crash predicted

BRISBANE (SCMP.com) - Imagine the market for application service providers (ASPs) as a giant chemical soup. In time, some good things will come out of the mixture, but most will end up as waste.

It is an inauspicious description of an industry hitting peak interest levels, but researchers with GartnerGroup say that ASPs are headed for a big crash.

"We are starting to see some nervousness as people start to question what can be delivered," said analyst Rolf Jester. "The next inevitable step is on to the slippery slope which leads to the trough of disillusionment."

It is a familiar story as the Internet industry shakes out and yesterday's favorite becomes today's lost cause.

Jester said he had already seen the negative spin on ASPs as customers began to recognise the glaring gap between what was promised and what was delivered.

Simply put, ASPs rent or license software applications and support services on a pay-per-use basis so companies do not need to make the big investment themselves.

The service is offered over a network, allowing remote access for employees and maintenance from a central location.

The concept has been widely promoted and holds tremendous potential for small enterprises and start-ups which want to use state-of-the-art applications, but lack the time and money to buy them.

But GartnerGroup estimates that by 2002, 60 percent of the ASPs in the Asia-Pacific region will die. Worldwide, it believes only a handful of players - perhaps 20 in all - will emerge to dominate the industry.

"There are a lot of people out there operating on very poor business models that fail to deliver what the customers expect," Jester said.

GartnerGroup research has found several problem areas for ASPs - such as the perception of weak security and reliability and the lack of established name-brand companies to deal with.

Jester said the enthusiasm which greeted ASPs as revolutionising the way people did business had also hurt the industry.

The technology was still several years away from meeting clients' expectations. His example was that software could not yet be fully customised.

But the companies which survive the shake-out would find rich rewards.

GartnerGroup estimates the international ASP market to be worth US$2.5 billion by 2004, or an annualised growth rate of 106 percent.

Jester said that, even with the growing pains, ASPs were still in demand because the core concept was good.

The need to deal with a mobile workforce, a shortage of skilled information technology workers and the promise of low-cost delivery were pushing even large companies towards ASPs.

The successful ASPs in the "second wave" would offer a browser-based system designed from the ground up to be provided over the Internet.

The new systems would be far cheaper and more easily expandable.