Customer uncertainty may be death of ASPs

A suffocating atmosphere could envelop the UK's application service provider market unless the channel does more to win end user confidence in the services sector.

A suffocating atmosphere could envelop the UK's application service provider (ASP) market unless the channel does more to win end user confidence in the services sector.

Ian Ross, managing director at service provider MRI, spoke out after evidence exposed the dangers facing end users. Analyst Gartner has predicted that more than half of today's ASPs will be out of business in three years' time.

"What worries businesses now is that they could sign a year's contract with an ASP which goes bust in six months, taking all their business systems down with them," said Ross. This is preventing growth in the UK market, he added.

However, explosive growth in demand for ASPs is forecast in the UK, and Gartner estimated the worldwide market will be worth $25bn (£16.7bn) by 2004. But Audrey Apfel, research director at Gartner, predicted a grim future for many smaller ASPs struggling to climb aboard the bandwagon.

Some 60 per cent of ASPs that are in business at the end of this year will be gone by the end of the next, due to competition, a failure to establish a brand identity and a lack of venture capital, said Apfel.

But Dave Boulanger, service director at AMR Research, said: "Generic ASPs are coming unstuck because they're not focused enough. The ASP industry has quickly evolved so that only companies with a specialised focus in a vertical niche will survive. This tends to be resellers. As long as they're in the right partnerships, they'll thrive."

Boulanger cited the recent collapse of Pandesic, a joint venture between Intel and SAP, as evidence of the fragility of a general purpose ASP.

But Ross said these are not the issues that need addressing immediately. "We need to put a structure in place that guarantees the safety of customer data. Until they get this insurance, users won't buy from ASPs," he said.

First published in Computer Reseller News