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Many application service providers (ASPs) have gone down over the past year alongside the dotcom crash, but the sector is enjoying a slow revival as businesses look to cut costs by using hosting services.

Technology consultancy Ovum predicts silver linings in the ASP cloud and a revival in the battered sector. Senior analyst John Delaney said that as economic conditions worsened, there would be a trend towards using application software as a network service as companies attempt to cut IT spending.

ASPs are expected to benefit as companies spend less on software, hardware and IT support services, and opt to outsource.

'This will help to fuel solid, sustainable growth in the ASP market,' he said.

Ovum expects revenues from ASP product rentals to be worth US$49 billion worldwide by 2006.

International Data Corp projects the ASP services market in Greater China will grow at a compound annual rate of 205 per cent between 1999 and 2004, by which time it will be worth US$205 million annually, while the market for ASP services in Asia-Pacific (excluding Japan) will be worth US$761 million.

At the height of the dotcom frenzy 18 months ago, ASPs in Hong Kong were proliferating as quickly as the then bullish investors could manage.

According to C. K. Wong, chairman of the Hong Kong Application Service Provider Industry Consortium (HKaspic), there were more than 50 ASPs last year. That number has since halved.

As businesses look to run leaner operations, outsourcing traditional IT functions, e-commerce and even some internal business processes to service providers will become increasingly appealing.

Mr Wong said the tough economic conditions were forcing some businesses to review the costs of IT operations and consider using hosting services.

Mr Delaney, however, warned that the road to profitability was fraught with economic stumbling blocks and required operators to invest and upgrade to next-generation IP-based networks. As a result, he said smaller ASPs faced far tougher challenges. 'ASP services promise major revenue opportunities, but ASPs first need to ride out some lean times,' Mr Delaney said.

The ASP concept has had lukewarm reception in the region as IT managers feared turning over responsibilities to third parties. Other thorny issues include ownership and security.

ASP applications run on servers owned and administered by someone else. IT managers worry that as the data and processes grow and become more important to the organisation, it might eventually become isolated from the rest of the company's IT environment.

'There is also a continuing need for ASPs to educate the market,' said Mr Delaney.

He said network operators such as Pacific Century CyberWorks and Hutchison Telecom were well positioned to take advantage of the opportunities in the ASP market.

'Companies that are best placed to gain the large ASP revenues that will eventually materialise are those that have the scale and resources to sustain the current period of slow-to-modest growth,' he said.

'This is one of the major factors that will boost the share of the ASP market available to be taken by the network operators.

'Operators are entering the ASP market, both as suppliers of enabling services to ASPs and as suppliers of ASP services direct to end-customers.

'ASP services are a natural fit for network operators, who already have many of the assets needed to offer ASP. By doing so, they are also capturing a greater amount of IT corporate spending.'

He said the winners would be operators able to react quickly to market needs.

'Operators must be able to implement both telecommunication as well as ASP services by enabling new types of services that combine voice, wireless and IT functionalities,' he said.



Battered ASP sector poised to enjoy a slow recovery with a silver lining