After spending time and speaking at the ASP Summit conference a short time ago, I began thinking about the dynamic changes that have occurred since I last wrote about application service providers (ASPs) six months ago. The conference brought together an interesting mix of service providers, vendors that partner with or supply ASPs and a smattering of current and prospective customers. One of the things that struck me was how much the vendors are still looking for guidance. The refinement of strategies, focusing on targeted market segments, how to get the right sales team and process in place, and whom to partner with were all hot topics.
The view of the ASP market I discussed in my December 2000 column had a fairly positive outlook. Many vendors were in the market with many more poised to break in. Numerous customers and prospects were testing the market. Furthermore, data warehousing (DW) and business intelligence (BI) solutions appeared to be likely candidates for hosted environments. However, even at that time I noted the market was in flux and there was the possibility of a sizeable consolidation.
The transformation of the ASP market has continued apace, and the market is certainly experiencing a shakeout. The market is fragmenting; there are now infrastructure service providers, aggregators, management service providers, wireless ASPs, hybrid providers and so on. Several speakers at the conference suggested that new categories are continuing to emerge. One of these categories, service level service providers, will monitor, report and manage the service levels as detailed in a service level agreement (SLA). There are so many different names and labels in the market that the acronym ASP may give way to xSP.
Caution in the DW/BI Arena
With so much turmoil amongst the vendors, it is no wonder that customers persist in their cautionary stance. Even the latest study from Survey.com regarding the DW/BI market shows that many users remain hesitant to move to a service provider model. Just seven percent of re-spondents say they are now using ASP services, and only 18 percent more are planning to within the next two years.
What are some of the characteristics of DW/BI users that find ASPs most appealing versus those that don't? Not surprisingly, those that are favorable toward using hosting services view themselves as visionary or early adopters when it comes to embracing new technology. It is also more likely that solutions in the development and implementation stages will be outsourced to service providers. One-third of the solutions that are in the planning stage are, or will be, hosted compared to only 14 percent of completed solutions and just 9 percent of solutions undergoing expansion.
Not all parts of a solution are candidates for hosting. The underlying database and even the warehousing or data mart components are more likely to be run and managed by a service provider than the front-end/analytic applications, as shown in Figure 1. This, again, validates users' enduring concern about letting go of sensitive data and information as well as business-critical parts of their operations.
Although neither the size of the solution nor the size of the business appears to be a significant differentiator in users' plans, smaller businesses with smaller solutions are more willing to have the front-end component hosted. This probably reflects their desire to benefit from BI applications that were previously cost prohibitive to purchase outright.
The most hesitant industry in regard to ASPs appears to be the telecom industry. Twenty to 30 percent of the respondents from Survey.com's study in other industries are willing to give ASPs a try; a paltry 6 percent of users in telecom are of a like mind. Why such a divergent view? A significant number of telecom respondents cite the sensitivity of their data and applications, which is a common response across all industries. Another reason may lie in the fact that telecom companies themselves are, or are becoming, major players in the market. Why outsource to someone else when you're one of the outsourcers? (However, one ASP Summit presenter cited a recommendation that ASPs would do well to outsource themselves.)
Settling In for a Long Ride
What does this mean for those looking forward to the many promises of the service- provider market? The huge predicted growth rates have been modified downward to more realistic levels. In the near term, expect a number of vendors to fall by the wayside or dramatically shift business models. The market will grow and be a very viable option for many customers; it will just take a while to do so.
If you are ready and eager to relinquish your DW/BI applications to a service provider, try to ignore the hype and the proliferating acronyms. Under- stand the type of service provider you are considering and the service providers' capabilities and shortcomings. Tho-roughly define your requirements and carefully craft a service level agreement that is realistic and meaningful. While the ultimate promise of the ASP market has yet to materialize, the future remains encouraging.
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