The market is now seemingly flooded with service providers (SPs), all offering to manage select applications or IT services on behalf of companies that are cutting back internally. 'Focus on what you're good at' is their message, taking advantage of the economic downturn which is leading to massive cutbacks across many industries.
Many companies no longer have much choice about the way they do business. Times are tough and resources won't stretch to cover everything essential - especially in IT.
The ASP market has been slow to grip organisations' imaginations, largely due to initial confusion and fear among software vendors who have taken time to understand the benefits of the concept of software as a service and to rewrite their software to support an Internet-based, pay-per-use delivery model.
Gartner predicts that the Web hosting market alone will be worth $12.09 billion in Europe by next year. There's no question that the market for selective outsourcing, or 'service provision', is going to explode. Companies will depend on these services if they want to stay ahead with technology and e-business, while not losing focus from their main business activities.
Keeping on top of the latest technology developments, software upgrades and all-important security measures is more than most businesses can cope with under their own steam. Offloading these activities to someone else is fast becoming a no-brainer.
What is in more doubt is who will clean up in the service provider markets. If customers are concerned about anything in this area, it's who to give their business to. Although there are some big names in this market, size isn't necessarily a guide to success. Indeed, some of the larger players are finding it hard to recoup their investments in large dedicated network and data centre infrastructures.
What is clear is that this market will polarise into a handful of large, generic players and a series of niche service providers offering tailored solutions for particular market sectors. But all these players need to differentiate their services.
The trouble with service provision is that 90 per cent of services are generic. It's all very well talking up security and reliability, but customers expect this as a given and simply won't entertain companies if there's a chance that security might be sub-standard or downtime might be an issue. So service providers and their reseller representatives need to think beyond these as selling points.
Maybe SPs should focus on the intangibles - the service-level agreements (SLAs), customer care aspects and brand and awareness campaigns. Many customers have felt misled by SLAs in the past, discovering that superior services cost extra in ways they hadn't expected. Customers also need to have confidence that their business activities and data will be not be compromised or at risk in the event of their SP going out of business.
Customer confidence is everything and it is here that SPs should be focusing their efforts. Instead of trying to appeal to everyone, they should tailor their services and build up reference sites in a particular market. For example, the government market could be good hunting ground and it remains relatively untapped for services such as Web hosting.
Trading conditions may be depressing at the moment but this is an exciting time for the service provision market. How can companies fail to see the attraction of what SPs are offering them? It's just a question of when and at what rate companies will make the transition. Will you be ready?
Lisa Archer is service provider marketing manager at HP