The Bloor Perspective: the ASP brain drain, EDS, and the growing online ad market

In their latest assessment of three of the week's key issues, Robin Bloor and his colleagues look at how ASPs might be worsening the skills shortage, EDS's ongoing trials and tribulations, and some projections for online ad revenues.

Which came first, the skills shortage or the ASP? That may seem a foolish question, but anybody who has been watching ASPs swallow up service companies could easily arrive at the view that they are actually partly responsible for everyone else's problems. In order to support the myriad of applications ASPs now offer, the ASP needs to acquire skilled personnel with experience of implementing and operating the completed solution. A part of the ASP message is that by allowing applications to be hosted a business is saved the time and effort of implementation. Acquiring product skills is necessary in delivering on that promise. It appears that any person or business with skills in a product favoured by ASPs is being bought or hired. On the other side of the coin, businesses with the skills are touting themselves to ASPs in the hope of a quick acquisition. The result of this is that ordinary businesses looking for skills in popular products can't find them anywhere. As a result, of
course, the ASPs can use the fact that they have skills as a positive marketing message. In a world where there is a shortage of skills, it is sometimes useful to consider the idea of placing them all in a few select locations and then allowing those that need the skills to buy services from the few. It seems so much more community minded to work this way rather than hiding the skills away in the few organisations that can afford to pay high wages. However, in this case, it seems the ASP community has taken the idea a little too far. It appears to be swallowing up some of the best skills available and then trying to hold small businesses to ransom by forcing them to buy hosted services. Yet, there is no real evidence that the SMEs are falling for this ploy as the supply of services far exceeds the demand for them. Perhaps some ASPs have a rather harsh lesson in economics to learn. *EDS - a-huntin' it shall go...* Some you win and some you lose. If one bunny bobs its tail at you and runs for its burrow, pull another rabbit out of the hat. That seems to be the story at EDS, which followed the news that Airtours was axing its $100m outsourcing agreement with the company by announcing a new $2bn deal with Rolls-Royce. The Rolls-Royce deal is said to add business integration and work-share collaboration to EDS's existing responsibility at Rolls-Royce for IT infrastructure, networks, systems, applications and end-user support. Given that little list of responsibilities, it's open to question whether Rolls-Royce still has any in-house IT capability worth talking about. And if it hasn't, how on earth could it ever think about axing the deal if it went wrong? Of course, EDS can point to the fact that it has already been working with Rolls-Royce for four years and that extending the contract until 2012 suggests that Rolls-Royce is very satisfied with the service it has been getting. The similar scale deal at the Inland Revenue is also said to be going well but that hasn't stopped the Commons Public Accounts Committee demanding assurances the deal can be terminated if required. What most MPs probably don't realise is that a termination clause in the contract is easy to arrange - doing anything practical about it would be quite another matter. There's no doubt that the use of outsourcing is set to increase but users who are more aware of this problem are tending to take the view that they'd rather split the aspects of their IT that they outsource between several suppliers than, as it were, put all their rabbits in one hat. That way, the consequences of terminating any deal would pose fewer practical problems. However, if that becomes the direction that most users take, it means we'll see more deals of lower value and fewer of the mega deals that the investors appear to want. *Ad revenue looking up* Sales of online advertising are set to rise from the $4.25bn recorded last year to almost double that figure ($7bn) by the end of this year, according to a study from Jupiter Communications. From then on, over the following five years, sales are predicted to rise initially by $3-4bn per year, gradually increasing to $4-5bn per year in the latter part of the
period. That sounds like a lot of money but the $18.5bn projected spend in 2003 is still under 5 per cent of total media spending. By 2005, the extent of US domination of the market is projected to fall to a mere 60 per cent, worth an expected $17bn. The principal beneficiary of this dent in US dominance is predicted to be Asia, which should see its market grow by 650 per cent over the period, to a value of $3.325bn. That is ahead of Western Europe's growth rate of around 580 per cent, giving it a $5.263bn share of the market. Next but much further down the line comes Latin America with a projected $1.6bn share of a total market value of $27.7bn. All this must be great news for web sites relying on advertising sales for revenue. But are the advertisers getting value for money? Jupiter Communications offers no help on this but Datamonitor has just issued a report suggesting that many etailers are simply throwing away the leads that they do get. Entitled 'The US Market for Internet-based Customer Service', the report states that an estimated $6.1bn of sales were lost last year by customers abandoning attempts to make purchases through etailers web sites. The figure is based on average purchase value multiplied by the number of aborted transactions that could have been salvaged and converted into sales. With dot-coms being forced now to think about profits, the Datamonitor figures put into perspective the importance of web site resilience and customer service in ecommerce. Datamonitor estimates that the average etailer could have improved online sales figures by some 35 per cent if the aborted transactions had been salvaged. Moreover, it estimates that if the trend continues it will lead to a loss of more than $173bn in sales that could have been realised over the next five years. That's around double the projected spend in online advertising over the same period, suggesting that, whatever companies spend on online advertising over the next five years, they're set to throw double the amount down the drain. ** For more research, see http://www.it-director.com