Last year saw the arrival of yet another three–letter acronym in the IT industry – the ASP, or application service provider. The phenomenon caused a lot of excitement, and many new businesses sprang up as ASPs, funded by optimistic venture capitalists who thought they were in on the start of a brand new gold rush.
Now little more than a year on, a number of ASPs are looking as sick as many of their dotcom cousins. Their cover has been blown and I suspect that in a year's time, the ASP phenomenon will have changed dramatically.
The concept of providing software as a service, which is the essence of an ASP, is a very good one and hence it is here to stay (it is actually not that different from the old mainframe bureau days). The delivery of software to a user's desk across a network is also set to become a major trend for the future – unfortunately, the telecommunications infrastructure in the small to medium enterprise (SME) marketplace makes it difficult to implement the model in a cost-effective and stable way.
Did some of the ASPs misunderstand what clients wanted from service providers? In other industries, a small number of companies invested heavily in building data centres, in the belief they would attract huge numbers of clients who would be happy to use the same application. Investors also held the view that there was massive potential in delivering applications from these centres to millions of SMEs. Based on this potential, analysts started projecting billions of pounds of ASP business – and more people began investing in the model.
At the same time, a whole host of software houses, network suppliers, internet service providers and consultants started labelling themselves as ASPs, thus fuelling forecasts, which in turn led to further investment and so the story continues.
So where are we now?
Most companies have finally realised that delivering applications as a service takes more skill and effort than delivering a software product. The service needs broadening, it needs someone the customer can trust and expertise in both the product and the management of the service. Some applications, such as mail and messaging, might become commodities and easily delivered via this model, but without a solid infrastructure they could be the exception.
However, for the most part, the level of skill needed to deliver applications across a network, is higher than that required for delivering a product. What we therefore see today is many start-up ASPs retrenching, while others are attempting to move their business models to a more service-orientated model, with consultancy and tailoring being key elements. Some are suffering because the commercial models were so reliant on high volumes of traffic and take up that as the transactions volumes have not materialised, they are having to rethink whether they can afford to stay in the market. Some underestimated the work involved in building some of these products and services and as a result their missed deadlines have caused some loss of confidence in the market.
Unfortunately, these days ASP has the same ring about it as dotcom. It smacks of start-ups and perhaps unreliable organisations – exactly what you don't want when entrusting your core back-office systems to another company.
On a positive note, we have to remember that the model is a good one, but we are still looking at the first-generation version of the model – you would hardly have been expected to take your family on a transatlantic holiday in a Wright Brothers plane. With the speed that technology is moving today, we should start to see second and third-generation models starting to emerge in the next couple of years. These should present a far more stable platform to run your business on.