Enterprises will turn to the application service provider (ASP) model by the end of 2002, generating almost $50 million in revenue in Australia and New Zealand, according to a study by researcher Frost and Sullivan.
Forecasting an annual compound growth rate of 55.4 per cent between 2000 and 2007, Frost and Sullivan IT analyst Gaurav Dua defended the optimistic outlook in spite of the widespread pessimism of users.
"It's not that long ago that the figure of $21 billion by 2003 was circulating, a figure that few people could digest. There has been a lot of hype and the ASP model hasn't lived up to it. But the fact is the ASP model is a very good model per se," he said.
Implementation delays gave ASPs a bad reputation, according to Dua.
"Companies used to go for big-timers, and rollouts could take a long time, sometimes up to 18 months due to high levels of customisation," he said, adding that because of the time lag, "the client hasn't realised the application's true potential".
Now ASPs are based on a standardised package and it can sometimes take only a month to implement a solution, he said.
At the moment, small-to-medium companies account for a significant proportion of ASP revenue in Australia, but Frost & Sullivan forecasts larger companies will gain more faith in the model in the next two to four years.
Dua said security concerns were the main reason large organisations avoid ASPs. However, most ASPs have addressed these concerns and implemented high-end security technologies, such as smartcards, digital certificates and single, double or triple firewalls, to ensure security and attract larger enterprises, he said.
Dua also forecasts there will be a shakeout and consolidation in the Australian ASP market over the next few years. The big players could take over smaller players and the survivors will be those ASPs that know their target audience, he said.
"The key is for ASPs to know their target audience and roll out the right applications for them," Dua said.
At the moment, messaging and groupware applications lead the market, with ERP and CRM the next popular applications.
According to Dua, there is a hesitancy in the market to trust ASPs with transactions until tried and tested, which is why messaging is the most popular application.
"Companies are likely to use messaging and groupware applications to make sure the model is perfect," he said.
ERP and particularly CRM are next in popularity in the Australian ASP market and contributed around 10 per cent and 8 per cent respectively to the total ASP revenues for the year 2000.
The researcher expects ERP to contribute around 23 per cent to total ASP revenues in 2005, and CRM will be around 20 per cent of the ASP market.
For large enterprises choosing an ASP, the service level agreement (SLA) is the key decision influencer, the study found. Basic elements that have to be covered in the SLA are uptime guarantees, security and payment terms and conditions.
Dua expects leading telcos, primarily due to their successful branding, to take a large share of the ASP market in the next couple of years.
At the moment, PeakHour and Solution 6 are market leaders, with their combined share accounting for almost half of the market. Frost and Sullivan expects Telstra and Optus to gain significant market share in 2002 as they can offer clients end-to-end solutions, including data centre provision, IT infrastructure, broadband and wide geographic reach.
"Telstra is the leading teleco in Australia and has excellent infrastructure in place," said Dua. "Even in neighbouring countries, Telstra and C&W Optus are known for their infrastructure and ASP model."
"Bandwidth is not an issue for Telstra and C&W Optus," Dua said.
When asked about reported problems with Telstra's broadband services, Dua said "the point is that all companies get into controversy. But Telstra is sitting on huge cash reserves; it exists nationwide and can target customers."
Eighty vendors from across the APAC region, including independent software vendors and telco operators, were surveyed in Frost and Sullivan's study. The report evaluated the respondents' revenue base and the existing and potential customer base over the next few years to derive the market forecasts through to 2007.