The nascent Canadian Applications Service Provider industry is in a state of flux. ASP solutions being deployed across the Canadian marketplace are based on a model born out of the ASP evolution in the U.S. market over the last two years.
ASP players in Canada have a clear understanding of who they are and how to differentiate themselves in this marketplace. This does not minimize their challenge of educating a largely unaware end-user market, targeting the best end-user segment and identifying sound strategies for market penetration. It does not minimize the need to formulate strong and effective direct-selling strategies and equally compelling strategies to stimulate ASP sales through partners and channels.
ASP strategies for market penetration have changed. The ASP business model being deployed today is more sophisticated in that it demonstrates a greater degree of sensitivity to end-user needs. The ASP industry as a whole may finally get serious customer traction, driven by the understanding that it needs to sell the best solution for the customer first, whatever this solution might be. For software vendors, that could be offering the customer the choice to buy or rent access to software; for telcos, that could be proposing managed Web-hosting, if that provides a strategy for market entry.
Resilience to Downturn
The outlook for the Canadian ASP market is healthy. IDC Canada estimates the compound annual growth rate for the sector as a whole (1999 through 2004) at 106%. Value of the Canadian enterprise ASP market is forecast at $32 million this year, rising to $192 million in 2004. The total ASP market in Canada this year (enterprise, collaborative and personal) is estimated at $69 million, rising to $455 million in 2004.
The current economic downturn will not necessarily have an unfavorable impact on ASP rollouts in Canada. The premise on which the ASP model is based can work very well in a climate where expenditures are critical and budgets are tight. Tighter budgets mean careful allocation of funds and heightened interest in smart ROIs. The ASP’s mantra is predicated on maximizing return and minimizing investment, with immediate gratification – an ideal proposition for the current economic mood. ASP and ASP partners need to know how to use this window of opportunity in their favour. Success for individual ASPs will be driven by how sharply aligned ASP strategies are with target customer segments and market demand.
Consolidation in the ASP world is a positive event, especially for the end user; the most likely ASPs to survive are players on more solid financial ground who can achieve profitability. These players need a clearly defined business plan and must be capable of redefining themselves to suit changing market conditions, in order to capitalize on upcoming market trends and economic conditions.
Operational expenses are still high for ASPs, largely due to the strain of IT resources required to manage sometimes broad applications portfolios. However, the ASP industry’s infrastructure is changing, and this is evident in the emerging Canadian landscape: almost half the companies deploying ASP solutions are software vendors.
Companies with strong core expertise necessary to the ASP model, such as systems integrators, infrastructure and network providers, are aggressively partnering with software vendors to deploy ASP solutions themselves, or strongly support ASP partnerships. Telcos have entered the ASP marketplace with an impact and are quickly emerging as key players to be watched. Large hardware vendors offer much more than signature servers and are acutely aware of the importance of deploying sophisticated ASP solutions, working in partnerships or independently.
This is an exciting time for the Canadian ASP industry. The strength of the ASP concept and the foundation of its key players will be put to the test as we enter a more challenging economic period.
The message to ASPs in Canada today is: don’t be fooled by the heightened activity and excitement as a sign of sure-fire success. Only the best are likely to thrive, and to be in this league, an ASP needs to know how to use its most relevant core competencies. Top ASP players target their end-user markets intel-ligently, based on known and anticipated demand, and understand the composition of their client base to maximize ASP sales and marketing efforts.
Lise Dellazizzo manages the Canadian Applications Service Provider program and is a Senior Analyst in the Internet Solutions Research group at IDC Canada Ltd.