Hosted apps top on-demand services

In my last commentary, I reported on the results of a recent utilitycomputing.itworld.com quick poll, which found that more than half (56.6%) of poll respondents view utility computing as a services solution rather than a technology solution.

We were so struck by the results of that poll that we decided to run a follow-up survey to identify the types of services that are commanding the greatest share of our website visitors' attention and dollars in 2004.

For anyone who thought the application service provider (ASP) business went the way of the Internet boom, our poll results should be a wake up call. As of this writing, hosted application services by far and away top the on-demand services lineup.

These results shouldn't come as a great surprise, since the fundamental value of utility computing is the ability to deliver business functionality to IT users on demand. Customers have grown increasingly frustrated with the difficulty and costs of implementing enterprise applications like CRM and ERP. Hosted application services offer the most cost-effective means of gaining immediate benefits from on-demand, utility computing solutions.

Despite forecasts that the applications hosting and management services (AHMS) industry was going to disappear with the Internet bust, this sector is experiencing a resurgence. A new generation of net-native software services, like Salesforce.com, is also driving the renewed growth of ASPs.

Independent ASPs - like Corio, Surebridge and USi - reported double-digit growth in 2003. Corio, for instance, reported a 22% jump this past year.

ISVs offering hosted services - such as PeopleSoft, Oracle and SAP - have reported that their application hosting businesses grew at a far greater rate in 2003 than their traditional software license revenues. In addition to building their own in-house AHMS capabilities, they have acquired or partnered with service providers to expand their offerings.

For instance, Ariba recently acquired Alliente, a privately-held procurement Business Process Outsourcing (BPO) provider, in a move that gives Ariba managed procurement service capabilities that can satisfy customers who want to outsource their spend management.

PeopleSoft kicked off 2004 with a strategic alliance with Surebridge to provide database, storage, and hardware hosting solutions for mid-size companies. This agreement is not only a plus for PeopleSoft and Surebridge, but also validates the entire AHMS business and further legitimizes the role of the independent ASPs. Rather than being seen as a competitor of the ISVs, the independents are now being viewed as complementary providers.

Major players like IBM, Hewlett-Packard and EDS have also seen increased demand for their hosted application services that are built on a variety of partnering arrangements. The most prominent example of this trend is the IBM/Siebel alliance that has produced a highly successful CRM on-demand services suite. Hewlett-Packard is working with PeopleSoft and SAP. And EDS supports SAP, Oracle and PeopleSoft applications.

Our quick poll results should give AHMS providers and enterprises considering hosted applications encouragement that the demand for these services will continue to grow in 2004. Our poll is another indication of the momentum of the AHMS market, and that these services are an attractive stepping stone to achieving the benefits of utility computing.