eBusiness: The Hope, the Hype, the
Power, the Pain
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(©
Jack M. Wilson, 1999, 2000) |
Application Service Providers
''The big beneficiaries of the next wave will be companies that are providing services to consumers.'' - Stephen M. Case, CEO of AOL
''Every company better think about this if they want to be around in 10 years,'' - Edward Zander, president of Sun Microsystems Inc
“All software will be delivered as service instead of a packaged product 10 years from now.” – Tim Chou, President, Oracle Business On-line.
Toward the end of the millennium, large companies became increasingly restive with the existing computing model in the enterprise. With millions of PCs running various kinds of productivity applications and special applications, companies faced the problem of keeping all of the software up to date, fully licensed, and operating with full efficiency. It was a gargantuan and decentralized task. Application Service Providers (ASPs) offered a different model. “Outsource your applications to us,” they said “and we will keep take care of all of your needs.” The proposal was enticing on the surface, but troubling to companies who feared the loss control over their own destinies. Could these ASP companies, like Corio, really deliver? Could they be trusted with your critical data? Would this really reduce operational costs? These were a few of the questions begin asked.
|
Company |
Revenue |
Months |
|
$300,000,000 |
31 |
|
|
$210,520,000 |
120 |
|
|
$100,000,000 |
36 |
|
|
$80,000,000 |
9 |
|
|
$60,000,000 |
12 |
|
|
$40,000,000 |
24 |
|
|
$35,500,000 |
16 |
|
|
$30,000,000 |
12 |
|
|
$30,000,000 |
24 |
|
|
$25,000,000 |
10 |
|
|
$24,000,000 |
36 |
|
|
$22,750,000 |
14 |
|
|
$20,000,000 |
30 |
|
|
$19,740,000 |
- |
|
|
$19,700,000 |
48 |
|
|
$18,067,000 |
72 |
|
|
$18,000,000 |
8 |
|
|
$17,000,000 |
24 |
|
|
$17,000,000 |
12 |
|
|
$15,125,000 |
24 |
|
|
$15,000,000 |
14 |
|
|
$14,000,000 |
1 |
|
|
$12,350,000 |
24 |
The 25 top application service providers are shown at left. [DATA: INFORMATION RESOURCE GROUP (http://www.irgweb.com/); TOP 50 APPLICATION SERVICE PROVIDERS, SPRING 2000]
Sun's Hampel argues that it's only a matter of time before Web-based applications gain a foothold. "The business model of the 21st century is on the Web," he said.
"If your business is not on the Web or using the Web, you'll cease to be in business."[1]
Dataquest had pegged the ASP market to grow to $22.7 billion by 2003, up from $889 million in 1998. But now, analyst Ben Pring says he overestimated those numbers by 25% to 30%. Pring says analysts thought users were eager to buy, "but now it appears they are just starting to wake up to this. The ASPs have to do a better job of selling the benefits." That's especially true when it comes to companies that have an IT staff and infrastructure.
In January 2001, IDC estimates that the ASP market will grow from $300 million in 1999 to $1.3 billion in 2001.[2] They think that by 2004 the market will reach $7.8 billion. Although this is a 92 percent growth rate, it is still only about 1 percent of the pending in the IT industry.
According to eMarketer , the growth will be a bit faster.[3]
Outsourced productivity applications on the Internet are edging somewhat closer to reality, with Sun Microsystems Inc. and Microsoft Corp. planning to deliver final versions of their hosted suites in the second half of this year.
ASPs are slow to gain market share:
Does your company rent the use of an application from an application service provider? 65% no. 26% yes and 9% expect to in the next 6 months. Information Week Data Survey of 655 companies on March 27,2000.
Why not?
Of those not considering ASPs,
· 30% say they're not a cost-effective solution, and
· another 29% see custom applications as a competitive advantage.
Large companies in particular want to own their applications and have them interface with other systems. They cite:
· Security and lack of control figure highly.
· Some companies aren't working with ASPs because of concerns about their long-term viability.
How many applications does your company rent (if they rent applications)? (InformationWeek)
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Questions
If you were the CEO of a Fortune 1000 company, would you look at ASP’s to provide productivity tools for your business.
Why or why not.
Please give both pluses and minuses.
Same question for a 30 million venture capital start-up company.
Why or why not.
Please give both pluses and minuses.