A Broader and Simpler ASP Market

If a recent report by high-tech market research firm In-Stat is correct, everyone reading this is going to look really smart in about 4 years. What is now a $100 million industry will grow to a $4 billion industry. Not too shabby. But what is this $4 billion industry going to look like? As the market matures, I expect it to both broaden and become simpler, much as the PC market did.

First, I think the In-Stat report, which you can purchase online, is dead on in saying that network carriers are going to drive the spread of application service provision. (I feel a certain satisfaction in having said something similar while at dinner 2 days before the report came out, but because I had an audience of two, I don't think it counts.) Branding is key in the application service provider (ASP) space because the market is so new and people are more likely to purchase a less-than-familiar service from a name they know. However, only a few companies currently have any broad name recognition within the ASP community. And once you leave the community, almost no one has heard of an ASP-associated company—except possibly Citrix, and even that assumes that you're talking to someone familiar with server-based computing. However, North Americans have heard of AT&T, which recently entered the ASP market and has begun partnering with data centers and application-hosting companies. AT&T will have a much easier time selling a new client on the ASP concept than its data center partners will, because potential clients will have heard of AT&T but probably won’t have heard of the data center. This is where convergence really happens: it's not clicking on the scarf that a character in your favorite sit-com is wearing so you can buy it; it's making application access one more part of your online service.

If network carriers are going to push the growth of ASP services, who's going to buy them? The Holy Grail of customers for online application sellers is large and enterprise businesses, but big companies aren’t likely to be the main customers for the services in the near future. An October 1999 International Data Corporation (IDC) study (#20415) indicates that the main markets for North American ASPs will be vertical markets, such as the mining and agricultural sectors, with other types of services, such as banking and engineering, further behind. Most of these companies are small-to-midsized businesses that want to outsource IT.

And I continue to hold out hope for the consumer market for ASPs because consumers want to protect their data but don't often want to do much to achieve that end. (Technology commentator Mark Minasi has noted that the best thing about Y2K was that, for once, individual users backed up their data.) In sufficient numbers, individual users are a great potential market for applications that they can't misconfigure and data that is backed up regularly.

Tax time in the United States is revealing the tip of the consumer-market iceberg, as companies such as HD Vest Financial Services offer online tax forms and data storage, so that when taxpayers log on each year, their previous years' tax data is available to them. Even in this limited market, however, there have been problems. Block Financial experienced some security problems (because of a software misconfiguration, customers could see each other's data). But, these problems should make all companies who offer online data storage more careful about data security and quick to explain how they protect user data. If tax-form ASPs can demonstrate to their customers that their applications and data are available to them and secure, people using the online tax forms will be more likely to use other online applications, much as many people use Web-based email today.

I don't think application service provision is ever going to be universal. No computing paradigm—not even the keyboard—is universal. But if ASPs market their services sensibly through recognized channels and to the people who need them, In-Stat's got a good chance of being right about the growth of the ASP market over the next few years.