March 26, 2001, 3:10 PM — ORLANDO -- The application service provider market is in such a state of flux that 60 percent of existing ASPs will fail by the second half of next year, according to an industry analyst speaking in Orlando Monday.
Gartner Group ASP watcher Rita Terdiman said depending on how you define the term ASP, there may be nearly 500 such companies in existence. There will likely be only about 20 big ones by 2004, Terdiman said at a Gartner conference.
Why so much consolidation? One big reason is that most ASPs are still trying to figure out the best business model, one that will enable them to make money and satisfy customers at the same time. In the meantime, many of them will disappoint their early customers because of a lack of quality-of-service guarantees, among other things.
"This is a very immature model," she said.
But Terdiman expects customers to use ASPs in greater numbers to help reduce costs, address IT skills shortages, and roll out applications more quickly.
Despite the demand for their services, many ASPs are struggling. Some have resorted to layoffs, others to mergers. Meanwhile, venture capital funding for ASPs has largely dried up after flowing into such service providers in recent years, Terdiman said.
Gartner defines ASPs as companies that provide for the online delivery of applications and services in a one-to-many fashion. The market has it roots in application hosting. Then came Web-enabled versions of existing applications. What is emerging now, Terdiman said, are applications built specifically as ASP offerings, taking full advantage of being offered as services. She cited companies such as NetLedger and eAlity as being developers of these native network services.