ASP potential set to make big impact

Ian Mtchell

City Briefing

I have been a believer in the application service provider (ASP) business model for some time, partly...

Ian Mtchell

City Briefing

I have been a believer in the application service provider (ASP) business model for some time, partly due to the impressive work being done by innovative companies in this space but mainly because of the business benefits to users of buying software as a service.

There is a long list of these benefits, including greater flexibility and scalability, access to world-class software and, not least, dramatically reduced cost of ownership. These are reasonably well understood now, especially by in-house IT managers who (needlessly in my opinion) fear for their jobs under this model.

What is becoming increasingly clear is that the current benefits of switching to ASP represent only the beginning of what can be achieved, especially for SMEs. Until now, companies have had little option but to invest in technology and the staff to make it work if they want to compete. Now, ASPs are coming to them (normally through the finance director) and their case is compelling. For the first time an IT provider is prepared to guarantee up-time of 99%-plus, compared with many in-house maintained systems which struggle to reach 95%.

On one level, businesses do not care what operating system they are using - or indeed what software - as long as the payroll is completed, the e-mail works and so on. Here, ASPs are competing mainly on the elegance of their solution and total cost of ownership. But it is at the higher end of core and mission-critical systems where ASPs will really produce the goods.

For example, ASPs will offer SMEs access to leading edge e-commerce solutions, including Web sites which are fully integrated with stock and billing systems and which allow real time interaction with customers.

Applications like these would be prohibitively expensive, complex and risky for individual companies to implement, but under the hosted model become much more straightforward. This allows the company to do what it does best, whether that's making cars, running an airline or selling houses.

There is a school of thought, especially in the user community, that considers ASP to be over-hyped. My message to them is to take a look at what is being developed and then decide. The biggest issue is not whether ASP takes off, but whether there will be enough good ASP companies to handle the workload when businesses realise exactly what can be done.

There are no publicly quoted companies in the UK to match the likes of Usinternetworking in the US, but there are a number in the venture capital and pre-initial public offering stage. Watch this space.

Ian Mitchell is an IT analyst with stockbroker Beeson Gregory. His opinions should not be construed as investment advice.

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