Leading figures from the application service provider industry, who gathered in Rome last week for the European ASP Summit, believe the industry has yet to deliver on its promises or build a critical mass of customers.
The clear message was that 2001 must be the year of delivery.
Although deals are being signed, the ASP suppliers have not achieved the spectacular growth predicted last year and examples of proven benefits to customers remain elusive. It also remains unclear which ASP business models will win through.
A key trend hotly debated at the summit was the failure to convince small and medium-sized businesses to embrace the software as a service concept. Twelve months ago it had been widely predicted that SME adoption would be widespread. Instead, it is larger corporates that have been the early adopters, such as South East Water.
"Who are our customers: SMEs or the corporates?" Paul Dinsmore, director of Symantec, asked delegates. He stressed that the patchy roll-out of broadband was delaying SME adoption. "We are finding that ASP is not taking off, as there is not enough access to broadband," he said.
Another factor limiting the take-up of ASP in Europe is the differing interpretations of European Commission data protection regulations. "Unless it is sorted, this will slow things down," said Jeff Maynard of Netstore and European chairman of the Application Service Provider Industry Consortium (Aspic).
Analysts expect the number of businesses taking advantage of the ASP model to accelerate this year. "Last year was the year of hype. This year is the year of delivery. Enterprises, and particularly SMEs, are waiting to see something delivered," said Greg Blatnik, vice-president of Zona Research.
Blatnik added that the SME market remained "uneducated" and argued that the supplier should be explaining to users what it can offer them.
"The industry as a whole remains immature and has still got to deliver on its promises," said Simon Moores, chairman of analysis firm The Research Group.
Exactly what the ASP model offers was keenly debated. Some speakers stressed cost and efficiency savings. Others argued that the ASP model allows enterprises to focus on their core competencies, while Tom Ilube, CEO of Lost Wax, said it offered firms a way "to buy innovation, talent and agility".
With Web sites becoming increasingly complex and business-critical, Richard Wigley of BT Ignite argued that the clear trend is towards service hosting and co-location despite sluggish take-up. "This is where the market is going and what our customers want," he said.
One problem many businesses experience is the confusing array of terms and products in this area. "A key trend emerging in the industry is fragmentation," said Dairn Carnie, director of application hosting company Digex. "Enablers, systems integrators, solution developers, applications aggregators and ASP resellers are all looking to win business in this market."
For many present, the key question was who will dominate the emerging ASP industry and therefore be the best companies to partner. Some, including Carnie, predicted that it will be whoever can bring all the pieces of the jigsaw together in a model that provides value to customers.
Will it be the big carriers, looking to leverage their existing networks to sell value-added services? Or will the big software providers, such as Microsoft with its .net strategy, win through?
"The carriers will be big players. They want to control the desktop in the same way as they do your phone," said Symantec's Dinsmore.
Other leading figures pointed to the software giants. Eamus Halpin, CEO of ASP aggregator iFuel, said that the big software firms will inevitably be key players. "Micosoft is spending £2.3bn on .net this year. As far as it is concerned, it is the only game in town."
According to Ronald Slimp, director of Enron Broadband Service, smaller companies are more likely to buy packages that include systems integration and application hosting.
The aggregation model, based on one-stop-shop service providers, is emerging rapidly, making application hosting more widely available. One leading US aggregator is Jamcracker, which offers over 30 software applications and integrates them into customers' legacy applications. "The aim is to provide a single, seamless environment," explained Feyzi Fatchi a director at Jamcracker.
Many delegates at the European ASPSummit said the industry must offer customers a much clearer value proposition. Several delegates, including Halpin, predicted that the industry will drop the ASP acronym and just focus on providing services.
"Within two years all ASP talk will have been dropped and we will just be focused on being service providers," Halpin said.
Problems facing the ASP industry