During the dot-com era, a lot of ideas were born, flared to life and then crashed in an ignominious heap as economic and business realities extracted their irrevocable toll. The idea of Application Software Provider (ASP) held a lot of promise to bring sophisticated applications to the mid-tier market at a reasonable cost. The general idea being that one gained access to an application reliably maintained, managed and provided through...
a dedicated service provider. The market never quite grew to meet the forecasts of rose-spectacled, market-sizing analysts.
And yet...all evidence pointed to a real demand and viable market. Does a market exist, waiting to be served? PNA believes the market is there and active today. A number of business and technology changes (ranging from static budgets to wide-spread, low cost, high-speed broad-band connections) have increased the level of confidence and made enterprise IT purchasers of all sizes willing to utilize new software delivery channels. Shriveling margins, sky-rocketing costs of sales drive vendor interest in trying alternative delivery mechanisms such as subscriptions to web-based access to solutions.
The fact that enterprises survived and some prospered while cutting IT spending over the last three years has enterprises trying to accurately distinguish between strategic IT spending (which should be proportional to the value of the business goals being supported) and maintenance IT spending (which should be minimized as much as possible). While IT operations remain far from irrelevant to business success as posited by an over-eager HBR editor, the enterprise executives believe that far too much IT time and resources were spent in simply maintaining a basic level of business computing in which, an increasing suspicion arose, business benefits were not adequately accounted. If IT's responsibility consisted primarily of the maintenance of an ever more commoditized infrastructure – outsourcing the majority of the basic IT applications and operations appears as an increasingly attractive, responsible business decision.
PNA believes the future path of enterprise IT is irrevocably tied to a direct connection to strategic business success. CIO's that aspire to anything beyond maintenance of the plumbing (and eventual outsourcing of that role) will have a model of IT operations that aligns resource usage, functional tasks, process definition and IT services provided with business strategies (see forthcoming PNA report IT Alignment and Governance: Scoring IT Operational Excellence due fall 2004).
That said, outsourced applications remain a serious and attractive alternative but ONLY if delivered in a package that includes well structured management. Reliable, consist and high performance applications delivered in a complex, changing environment is completely dependant upon a robust operating infrastructure – network, servers, storage, applications and support services. Without proper management, infrastructure operation is a crap shoot of casually associated infrastructure silos.
PNA expects to see more experimentation in offering Software as a Service (SaaS) ala Computer Associates Vulnerability Threat Management services. We see the return of MSPs whether interpreted as Managed Service Providers (business applications managed by the provider with serious availability and performance guarantees) or Management Service Providers (IT management applications delivered as a service with subscription or term-pricing as Computer Associates does today). The increasing cost of sales coupled with resistance to high cost management solutions with extended implementation times – the prospect of subscription purchase of incremental management functions appears an increasingly attractive alternative from both sides.
Today ASPs make up a very small slice of the market. As vendors examine the alternatives, now is the time for enterprises of all sizes as well as potential channel partners to think through their requirements and preferences and push these back to the solutions providers.