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IP backbone players gain from ASP business

The emergence of the ASP market is creating new revenue opportunities for IP backbone carriers who provide the infrastructure to deliver these services.
Written by ZDNet Staff, Contributor
The emergence of the application service provider (ASP) market is creating new revenue opportunities for Internet Protocol (IP) backbone carriers who provide the infrastructure to deliver these services.

SINGAPORE - The worldwide market for ASP hosting is forecast to grow from $360 million in 2000 to more than $2.5 billion in 2004, according to Dataquest Inc., a unit of Gartner Group, Inc.

ASP hosting accounts for approximately 10 percent of the total ASP market.

"ASPs depend on reliable and high-performance networks to deliver their service to customers. This puts the Internet hosting players, whose core strength is network infrastructure, in a natural position to play a leading role in this market," said Chee Eng To, senior analyst for Gartner Dataquest's e-IP Backbone Strategies and Opportunities Worldwide program. "The risk is low because hosting players can rely on conventional hosting revenues while building up ASP market share."

ASP hosting provides many challenges and risks, but for many of the carriers the possible rewards in this segment outweigh the risks involved. "The carriers have been battling in the traditional bandwidth market, where competition is driving down prices," To said. "As such, carriers have to find a way to move up the value chain, differentiate themselves from competitors and find a new revenue stream. With ASP hosting, backbone carriers are in a prime position to capitalize on this potentially lucrative market."

To be successful in the ASP hosting market, players need to demonstrate that they can deliver corporate-class applications. "This means they have to engineer their networks to deliver a consistently high quality service, backed by service level guarantees. Those who can deliver a premium service will be able to charge premium rates," To said.

Demand for hosting translates into demand for backbone services. Gartner Dataquest analysts said this is because hosting centers depend on IP backbones to connect ASPs with customers. "It's a strategic imperative for IP backbone carriers to be successful in the ASP market because of its enormous growth potential," To concluded.

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