The worldwide ASP (application service provider) hosting market will grow at 62.3 per cent annually to reach a total value of US$2.5 billion by 2004, up from US$360 million in 2000, according to a study released last month by market analyst Gartner Group Inc.
Hosting will account for about 10 per cent of a total ASP market of US$25.3 billion in 2004, according to Gartner estimates.
ASPs depend on reliable and high-performance networks to deliver their service to customers, and this puts the Internet hosting players, whose core strength is network infrastructure, in a strong position to play a leading role in this market. ASP hosting provides many challenges and risks, but for many of the carriers the possible rewards in this segment outweigh the risks involved, Gartner said.
The carriers have been battling in the traditional bandwidth market, where competition is driving down prices. The carriers need to find a way to move up the value chain, differentiate themselves from competitors and find a new revenue stream. The emergence of the ASP market is creating those revenue opportunities for IP backbone carriers who provide the infrastructure to deliver these services. The risk is low because hosting players can rely on conventional hosting revenues while building up ASP market share, Gartner said.
Demand for hosting translates into demand for backbone services because hosting centers depend on IP backbones to connect ASPs with customers. It is therefore a strategic imperative for IP backbone carriers to be successful in the ASP market because of its enormous growth potential, Gartner said.
But to be successful in the ASP hosting market, players need to demonstrate that they can deliver corporate-class applications. This means they have to engineer their networks to deliver a consistently high quality service, backed by service level guarantees. Those who can deliver a premium service will be able to charge premium rates, Gartner said.