ASPs will disrupt IT industry

ASPs will disrupt IT industry

According to a new report published yesterday by International Data Corp, the emergence of the application service provider (ASP) model for software licensing will have a dramatic impact on the existing customer-vendor relationship model and could result in disaster for those vendors that do not adjust quickly enough to the new paradigm.

Emphasising the importance that analysts are attaching to this nascent market, Dataquest separately yesterday released figures predicting that the ASP market will surpass $US22 billion by 2003, a dramatic increase from the $889 million which Dataquest says it represented in 1998.

IDC's report, entitled "The ASPs' Impact on the IT Industry", is focused on how the ASP market will shake up existing relationships between customer and vendor. Specifically, it assesses the effects that the emergence of ASPs will have in five key areas: services, software, hardware, communications, and channels and partnering.

For traditional service vendors, the most important thing is not to ignore the new breed of ASPs, according to IDC, in particular because ASPs can provide benefits that other services vendors have yet to emulate.

"Application service providers will force a change in the way services are delivered," according to Meredith Whalen, manager for IDC's Application Service Providers research program. "[These services] will be more standardised, quicker and have an operations component."

For this reason, service providers will have to offer comparable capabilities in order to compete with their new rivals, according to IDC.

One of the effects on software vendors will be that they have to reevaluate who their customers are, finds IDC. They will have to decide whether they themselves should act as ASPs, or should market their products to ASPs - a decision that IDC sees as being dependent on the kind of software being produced. For hardware vendors, particularly those in the storage field, the rise of the ASP is more positive, as IDC sees huge potential coming from ASPs for infrastructure equipment that can cope with the one-to-many delivery model.

Similarly, vendors of communications services are encouraged in the report to ensure that their networks are capable of handling the large volumes of traffic that the ASP market could generate. Those that can do so, IDC finds, will be well-poised to win significant new sources of revenue from ASPs.

Finally, vendors should tread carefully when considering which channels and partners to choose, IDC finds. It advocates selecting strategic partners to perform specific functions, using these as a means of building market presence, and building on this to develop ASP policies, programs and relationships.

IDC has made "The ASPs' Impact on the IT Industry" available for free download from

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