ASPs Offer New Mechanics for E-World

Finding companies that work on content for Web sites is basically easy. Finding companies that can launch a firm into the world of e-commerce is a different matter. These companies are much more than consultants with a group of techies that know how to implement little else.

Application service providers are a new breed of firms that pull it all together from behind the Web site. Blend together Web hosting, information technology outsourcing and consulting and you have an ASP.

Industry analysts differ on how the new ASP businesses should be categorized and defined and, as a result, ASP market projections vary wildly but solidly in the billions of dollars. The Gartner Group estimates ASP projects for 2003 will reach $22.7 billion. International Data Corp. foresees $2 billion in ASP projects in 2003. The truth lies somewhere in between, depending on the services provided.

What do these new businesses do? According to the experts, an ASP deploys, maintains, upgrades and supports software. And they serve just about any company with an Internet site or a data warehouse. It’s interesting to note that an Internet site needs just as much support as a data warehouse. The internal resources of most IT departments are already overwhelmed with day-to-day support and developmental issues. U.S. companies spent $153 billion on e-business infrastructure in 1999 – seven times the 1999 Internet retail sales. According to the Internet Research Group and SRI Consulting, Internet infrastructure costs are expected to soar to $348 billion by 2003.

Instead of handling all the Internet and data warehouse tasks inhouse, companies can pay a subscription fee to an ASP to manage these functions. To qualify, a firm must be a full-service company that will take total responsibility for everything associated with either its Internet, intranet or extranet applications.

ASP start-ups include Usinternetworking, Corio and Future Link. Microsoft and Cisco said they’re collaborating to provide ASPs with an end-to-end solution to deployoutsourced applications and services. Other companies plan to provide infrastructure and support while working with independent software vendors such as Great Plains, Clarus Corp. and Pivotal Corporate to enhance the service available to midsize businesses in corporate purchasing, business management and customer relationship management.

This move is meant to help ASPs offer customer services that are an alternative to the resource-intensive process of deploying and managing complex applications inhouse.

Crossover From ASP to CRM

Application hosting also is emerging as an option for customer relationship management. Oracle’s Business Online initiative is a good example. Customers can purchase the Oracle CRM 3i suite as a service and host the application in an Oracle data center. A joint effort between Nortel Networks and the Sun-Netscape Alliance aims to provide a standards-based framework that will allow Internet service providers and ASPs to create new service bundles, deliver them, and manage them more efficiently.

Market researcher The Yankee Group forecasts that the market for hosted CRM solutions will escalate from $50 million in 1999 to more than $1.5 billion in 2003, including both infrastructure and software revenues. An increasing number of organizations, primarily those focused on the Web as a customer channel, will be able to leverage the next generation of hosted solutions to react quickly to ever-changing CRM challenges. However, while The Yankee Group predicts that ASPs will be financially attractive for hosting certain CRM applications in the short term, customization requirements will present significant challenges for an enterprisewide CRM rental market.

As recently as one year ago, companies had few options in the CRM area other than to license a client-server product, or build or augment existing capabilities. Within the past six months, software vendors, third parties (ASPs) and users have begun experimenting with hosted CRM solutions. The Yankee Group predicts there will be a transition period to hosted CRM solutions characterized by a range of products and pricing models.

Some trends likely to take place are:

• Two delivery models for hosted CRM solutions will emerge.

• Self-hosted solutions (vendors hosting their own products).

• Third-party solutions with a significant integration and consultative component, delivered by what The Yankee Group calls solution service providers that will leverage the hosted model to gain significant market share.

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