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SCMP Reporter

The economic malaise has halved the ranks of application service providers (ASPs) in Hong Kong, according to an executive.

To stay alive, many local ASPs have sharpened their focus on specific industries and pursued opportunities on the mainland.

C.K. Wong, chief executive at iASPEC Technologies and director of the ASP Industry Consortium, said there were now between 20 and 25 ASP businesses in Hong Kong, down from about 50 last year.

Early this year, research from iASPEC showed that about 100 local firms had claimed they had some form of ASP operation in their business.

'GlobalNet [Telecommunications] is the most high-profile casualty so far, but there are also smaller operations affected by the economic slowdown,' he said. 'This kind of shake-out is normal for any industry at its infancy.'

One of Hong Kong's first five Internet service providers formed in 1995, GlobalNet made a splash in the ASP arena last year when it developed a Web-site engine for Zone1511, which had claimed to be the world's only international direct dialling services portal. The portal automatically chooses the lowest-priced long-distance service provider for users at the time of their call.

Seagate Software, a subsidiary of hard-drive maker Seagate Technology, also had picked GlobalNet to offer its integrated business applications in the Asia-Pacific.

GlobalNet, based in the United States, closed its North Point office last month as its facilities went under receivership.

Mr Wong said the company's management decided to focus on its US business, and that the number of Hong Kong staff retrenched was quite small.

Despite the rising number of casualties in the local ASP market, Mr Wong said many large and medium-sized businesses in the transport and logistics, retail, construction and hotel sectors were ready to adopt ASP offerings from the corresponding players.

ASPs enable companies to outsource certain information-technology requirements by delivering standard applications and services via the Internet or private networks to multiple users.

The mainland now is providing a lifeline for certain ASPs such as iASPEC.

Mr Wong said the ratio of iASPEC's business in the mainland to Hong Kong was now 70:30 as demand was growing both from domestic enterprises and government agencies.

'The potential for growth in the local ASP market remains,' he said. 'We must now refocus our efforts and adopt our business strategies to the prevailing market conditions.'

The ASP market in Greater China was predicted to grow 250 per cent by 2004 and make up 4 per cent of the total packaged software sold in the region, research firm International Data Corp said.

According to research firm Gartner, only 40 per cent of the ASPs created before this year will have a chance to survive. The rest will fail due to poorly developed business plans, the selection of wrong partners, an inability to execute and consolidation in their domestic ASP markets.

While the worldwide ASP market had been projected to grow to about US$25 billion by 2005, the path would be littered with failures, Gartner said.

Lane Leskela, research director and principal analyst for e-business at Gartner, pointed out that the global ASP market would probably be dominated by big players, such as Oracle and Microsoft, which have strong brand recognition and can leverage economies of scale.



Struggling ASPs take narrower focus as ranks thin