ASP shakeout anticipated

The ASP (application service provider) market will undergo a painful shakeout in the next year, industry observers said at the ASPWorld Conference & Expo in San Jose, Calif. on Wednesday.

More than half of the 500-plus ASPs currently doing business will not survive, according to Terrence Ozan, director of global sectors at Chantilly, Va.-based consulting firm Cap Gemini Ernst & Young.

“There are over 500 companies calling themselves ASPs – hardware and software vendors, telcos, outsourcers, consulting firms – all offering different things, from Web hosting to applications management,” Ozan said, a keynote speaker at the conference.

But many will be gone within a year, Ozan said. “The good news is that the ASP market is too important to go away; the bad news is much needs to change for ASPs to be successful,” he said.

Confirming that view, IDC made a bulletin available at the conference that said there would be an “inevitable consolidation,” in which “hundreds of today’s ASPs won’t survive to see their first dozen customers.”

But IDC said the ASP market, which showed revenue of US$300 million in 1999, would reach $7.8 billion by 2004.

The ASP market is following a historic pattern for the technology industry of growth and consolidation, Ozan said.

To survive in the future, many ASPs will have to refashion their operations, Ozan said. “The market will require ASPs to transform their business,” he said.

“The ASP market will mature to meet the needs of high growth and large enterprises,” Ozan said. “[Many ASPs] will move beyond being a technology utility to be a single-source provider of assistance and capability in business operations and integration.”

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