ASPs bullish on trend - Industry Trend or Event

Network mangers still concerned about monitoring and security.

IT and network managers, contrary to conventional wisdom, are welcoming the application service provider (ASP) trend--once they get a closer look. Companies are no longer testing the ASP waters. They are diving right in to e-commerce and Web-hosting solutions, presenting a challenge for network managers, who are especially concerned with monitoring and security.

"Look at the adoption rates of e-business--we saw that people were first using the Internet for gathering information about their industry, their competitors, and providing information about themselves to their customers," says Kathy Dodsworth of IBM Global Services. The next stage, she says, was using the Internet for simple communications like e-mail, or collaboration among people within or across their enterprise.

"We (then) saw companies moving more aggressively into e-commerce," she adds. "From there, we thought they would move to more integrated solutions. I would say that was true a year ago." With increased business interest in the Internet, however, "they're leap-frogging some of those initial steps--very quickly wanting to provide an e-commerce solution or do some Web-hosting, because they can see the advantage of that immediately."

Communications News talked to a number of ASPs to gauge what applications enterprises were most likely to outsource, as well as to determine user needs and concerns. Not surprisingly, these ASP sources put a generally positive spin on the acceptance of their services and their future growth potential.

COMING TRENDS

What are the coming trends network managers have to look for in the next several years? Joe Gabriel, manager of business development and technology in Progress Software's ASP division, sees a shift "toward the concept of application suites. They (customers) may want to subscribe to a suite of applications."

"There's been a tremendous focus on ERP and CRM," says Dodsworth, director of hosted business application services for IBM Global Services. "We're seeing those applications being enabled in a hosting environment." She adds that a coming trend is the creation of "industry solutions--to take advantage of integrating those back office applications with those front office applications, focused on a very specific industry need. That need typically includes wanting to be able to take advantage of the Internet."

Those in the ASP industry--including company officials and consultants--look for increased business to come from small and mid-sized businesses. Mergers and acquisitions may also spur ASP growth--especially if the companies being merged operate on different computer systems. Forrester Research projects that spending on ASP services will total $11.31 billion in 2003, up from $933 million in 1999--with the bulk of the growth among companies with less than 1,000 employees.

Dodsworth says one example would be a retailer wanting to take advantage of e-commerce. "They also want to have one view of their customer, so they need customer relationship management (CRM) software, to get that customer profile. And once they start doing e-commerce, that retailer also wants to integrate that information into their back office system. You'll see solutions that allow a company to transact business from their customer through to their supplier."

"In 2000, we're hosting applications that were never designed to be hosted," says Jonathan Lee, Corio founder and chief strategy officer. "The current applications were designed to be bought, leveraged, and used by internal organizations. In 2001 and beyond, we'll see more and more `hostable' architecture applications coming to market."

Gabriel sees the proliferation of marketplace exchanges that can benefit network managers looking for applications. "These Web sites are bringing suppliers and buyers together--almost a barter service," he says.

IT directors are reluctant about ASPs at first, until they meet with company representatives to sort out the facts, according to Michele Perry, USinternetworking (USi) vice president of marketing. "They always have a lot of reasons why they think it won't work. It sounds too good to be true," she says, when USi discusses its iMAP and AppHost offerings with them.

NETWORK MANAGER CONCERNS

Network managers, on the other hand, seem especially concerned about security, and managing a 24-7 e-business operation. "Network managers will question, `What does your SLA (service level agreement) look like? How do you manage data centers and network? How reliable are you? What are your security issues?'" says Lee.

Dodsworth says Web hosting can be especially helpful to network managers who realize the dynamics of 24-7 e-commerce. "A lot of companies recognize that once you are starting to do Web hosting instead of applications, and you're really running critical applications on the Internet, there are some implications there. How do you manage scalability? How do you manage a 24-7 operation?

"A lot of the network managers are recognizing that the Web really is on all the time. That may not be the set of competencies that they have today, or that they actually want to invest in," she says. "Partnering with IBM, that can provide the kind of hosting environment that benefits them because it's really sharing the risk of managing that Web environment. We move the risk of managing away from the network manager."

Interliant CEO Herb Hribar says security is another top concern with network managers. "There's a lot of interest out there in terms of security on the Net," he says, adding that his company bundles security applications with other programs. Perry says that when USi representatives are questioned on the issue, they show that "our security is so much stronger" than those of IT departments.

"We have security specialists who can help customers make sure that their access to the Internet and applications on Interliant are secure," Hribar says, who adds that Interliant will soon be launching a managed security service, where the ASP will monitor attacks against company systems and counter those attacks from a control center. "They're able to outsource their whole security environment."

"For network managers, the whole notion of applications management and monitoring is a much more important ASP environment," says Gabriel. "Knowing when your application goes down is extremely important."

Gabriel, who describes Progress Software as an ASP industry "enabler," says his company offers ASPs Progress RDM (remote database monitoring) as part of a products and service package. The RDM software which sits next to the network, warns when the system dips below a certain threshold, and generates an e-mail alert that is sent to the ASP and--if the company chooses--Progress Software, for its assistance.

For IT directors--and network managers in particular--off-loading mundane tasks also attract s them to ASPs. "Today's IT directors are overburdened with work, so if they can delegate responsibility for non-critical applications to a supplier, that means that they can concentrate on delivering the critical projects to the business," says Katy Ring, senior analyst at Boston-based research and consulting firm Ovum.

"The network managers may want to offload things that are more traditional, so they can invest in this kind of an environment," adds Dodsworth.

Avoiding the burden of hiring additional staff also continues to be a drawing card for ASPs. "Your company has already made an investment in technology; what you're challenged with is staffing IT or funding added staff," says David VandeCasteele, acting vice president of marketing for Qwest Cyber.Solutions. Hiring IT staff can be quite a challenge--especially when the field's turnover rate is between 22% and 27%, according to VandeCasteele. "Turnover is immense," he says, adding that ASPs allow companies to "keep all their investment. Turnover is no longer their problem."

Whatever applications are preferred, all indicators point to immense ASP growth during the next six years. The ASP market is expected to reach $136 billion by 2006, becoming more commonplace with all sizes of businesses, according to Ovum. Other groups are projecting large ASP industry growth in varying degrees. Gartner Group's Dataquest unit, for example, projects ASP services revenue will grow to $22.7 billion in 2003, up from $889 million in 1999.

Actual and projected amounts spent on services (millions), by company size:

                1999     2000     2001     2002      2003

<100employees   $316     $649   $1,233   $2,257    $3,850

100-999          562    1,188    2,304    4,090     6,623

1,000-4,999       44      100      203      370       605

>5,000            11       27       63      128       233

Total           $933   $1,964   $3,803   $6,845   $11,311

Source: Forrester Research

Contact Information

Corio
Contact: Jonathan Lee
(650) 298-4800
www.corio.com

IBM Global Services
Contact: Kathy Dodsworth
(914) 499-1900
www.ibm.com

Interliant
Contact: Herb Hribar
(914) 640-9000
www.interliant.com

Progress Software
Contact: Joe Gabriel
(781) 280-4000
www.progress.com

Qwest Cyber.Solutions
Contact: Dave VandeCasteele
(800) 899-7780
www.qwest.com

USinternetworking
Contact: Michele Perry
(800) 839-4874

www.usi.net

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