But the big question many corporations are wrestling with is which parts of an operation to outsource. It's this dilemma that’s keeping the application service provider market from living up to its earlier billing. In addition, company indecision is also putting pressure on many players in the ASP market.
"The ASP is not as unhealthy as people believe, but it’s also not as good as all the hype before the crash," says Ross Brown, president of Sound Consulting. "Any time you require a behavioral change, you can expect it to take three to five years. We’re in year two."
Brown says that pragmatists are embracing the ASP model to avoid capital investments and minimize their operating risk. But he adds that these companies are early adopters, with the rest of the market still mulling over how to join the e-business wave.
This may help explain why a-Services–-a company that came to market six months ago offering a bundled network, appliance and desktop application service–-has since unbundled its various parts. Simon Angove, director of product management at a-Services, says companies that have signed on still are outsourcing specific functions of their business, rather than entire processes.
He says widespread market education is necessary before ASP services at large take hold, which is why a-Services is spending much of its time training its partners on how to sell these services.
"Companies have to understand their core competencies and realize that they can’t be all things to all men," says Angove. "This is not so much about resistance to ASPs as it is about Internet security and outsourcing in general."
A-Services offers two application lines: Webtop Productivity, which includes Office and online storage, and Webtop Collaboration, which is focused on enterprise messaging. So far, the most widespread acceptance throughout midsize corporations among all ASPs has been enterprise messaging.
IBM likewise is seeing some new interest in outsourcing. Rick Ruiz, VP of sales for IBM’s Eastern Region, says he recently made six sales calls to midsize businesses, and four of those involved outsourcing discussions.
"We’re seeing CEOs getting involved in these discussions for the first time," says Ruiz.