Who's Buying ASP, Anyway?
Source: ASPstreet.com By Allen Bernard
October 21, 2002
Industry watchers agree that ASP services are consistently gaining acceptance. Who is buying those services, however, is less clear. The answer, it seems, pretty much depends on what applications are involved.
At first glance, based on customer-acquisition announcements, enterprises are adopting ASP services faster than any other market segment. But, according to a cross section of industry analysts and association managers, that can be deceiving.
Yes, enterprises (companies usually described as having yearly revenue of $250 million or more) are more interested in and spending more money on ASP-delivered applications, but it is still the applications they are buying, not the delivery vehicle.
"We're seeing a continuation of ASP adoption in the large enterprises, but we're also finding other significant instances of adoption for small-and-mid-size companies," Carol Henton, ASP Program director at the Information Technology Association of America, told ASPnews.
"It really does seem to depend on the type of application. ERP [enterprise resource planning] or CRM [customer relationship management] is a very different thing than a restaurant application or the type of product offered by a company such as Salesforce.com or NetLedger."
Gaining Ground at the Enterprise
Denis Pombriant, vice president and managing director of ASP and CRM research at Aberdeen Group, told ASPnews his studies show about 20 percent-to-30 percent interest in ASP-delivered solutions from either enterprise or mid-market customers. The 10-percent variation depends on the application being discussed.
For marketing and sales force automation (SFA) applications, 30 percent of respondents said they would look at an ASP-delivered solution. For CRM, help desk and other customer-service solutions, only 20 percent said they would consider ASP as an option.
Although the numbers may seem low, Pombriant said they are actually very encouraging.
"The message is finally getting through for sure," he said. "A lot of organizations are starting to say, 'Okay, I'm going to retire this home-grown solution and going with off-the-shelf products.' What we're seeing right now is companies that are interested in deploying CRM are looking at hosted solutions to get the solution they need without massive investment."
Smaller Firms Go Net-Native
The ASP model, which most still classify as delivering hosted applications from well-established independent software vendors (ISVs) such as SAP and Peoplesoft, is more popular among enterprise clients. The "other" group of ASPs — often classified as software-as-a-service vendors or ISVs that deliver Net-native programs via the hosted model — seems to resonate with smaller firms. This is because they offer the right amount of functionality at the right price, Jessica Goepfert, IDC's ASP program manager, told ASPnews.
This logic holds true even when large enterprise clients sign on the dotted line, because often just one division and not the entire corporation is signing up for the hosted services.
"A lot of ASPs have said they are targeting larger customers and seeing interest from larger customers and those are certainly the deals that are more public," Goepfert said. "There's always been interest from large companies, but I don't see that turning into dollars yet."
Goepfert's observations are seconded by Fred Hoch, vice president of Software Programs at the Software & Information Industry Association (SIIA). Through discussions with customers, vendors and software-as-a-service providers such Salesforce.com and Upshot, Hoch said he has learned that companies with 20 to 500 employees are the most likely consumers of ASP-delivered software.
Hoch said he believes the shift towards smaller companies taking a chance on hosted solutions began about six months ago. Up until then, most of the action was taking place at enterprises big enough to "afford to be wrong," according to Aberdeen's Pombriant.
ASP Becoming an Everyday Thing
If smaller companies are indeed beginning the long-awaited buying of hosted solutions the reason is probably the ASP value proposition — IT solutions delivered via a network at a low, usually fixed monthly cost requiring no upfront capital investment by the customer — is slowly, steadily worming its way into the thinking of everyday decision makers, Laurie McCabe, vice president and ASP Practice director at Summit Strategies, told ASPnews.
"To me it's not a big surprise," McCabe said. "What's happening is the mid-sized to large companies that would have tried to run a Peoplesoft or Oracle or whatever themselves in house are looking at these ASPs because they are less of a risk or because they simply don't have the IT people in house to do it."
A number of factors are driving interest in ASP-delivered solutions, including tight IT budgets and increased interest in security. However, interest is also being spurred by more SMEs looking to adopt new software such as CRM applications that were never considered before because of cost and/or complexity.
Survival of the Fittest
Customer uptake among ASPs can be attributed to several factors. However, perhaps the most important one is that the industry seems to have survived a serious shakeout with enough solid companies left standing to give the ASP model a new lease on life and enough credibility that word of mouth may be starting to win converts among wary IT managers and cautious smaller businesses.
"All of the companies I talked to were, on the whole, very satisfied," Summit's McCabe said. "That's something that's struck me across the board. Whatever kind of ASP we're talking about, their customers are mostly pretty happy. Their [customers] biggest concern going forward is 'I want my ASP to stay in business.'"