Application Service Providers Will Have a Disruptive Effect on Established IT Industry Leaders, According to IDC

FRAMINGHAM, Mass.– 10/25/1999 — The rise of new application service providers (ASPs) is having a disruptive effect on established relations within the IT industry, and many companies will need to scramble to determine where and how they will play in the emerging market. If industry leaders aren't aware of ASPs' potential effect, they may be displaced. This is a key message of a new report from International Data Corporation (IDC).

"Supplier requirements to reach smaller customers, customer needs for quicker implementations and better cost/performance, and overall network improvements are driving a new applications delivery model," said Clare Gillan, vice president of Applications and Information Access research at IDC. "But the target for ASPs is not just small companies, and it is not just application vendor models that will change. We are on the brink of IT industry disruption — forcing every IT vendor to question their business models, their role, and even their customer relationships."

IDC's new report highlights the effect of ASPs on the IT industry from five perspectives: services, software, hardware, communications, and channels and partnering.

ASPs' Effect on Services

"The biggest threat that a services firm faces from application service providers is ignoring them," said Meredith Whalen, manager for IDC's Application Service Providers research program. "Application service providers will force a fundamental change in the way services are delivered. They'll be more standardized and quicker and have an operations component." According to IDC, traditional service firms will be pressured to include elements of an ASP service with their offerings.

For more information on how the ASP will affect the services industry, please contact Meredith Whalen at mwhalen@idc.com.

ASPs' Effect on Software

According to IDC, the biggest thing software vendors will have to figure out because of the ASP model is who their customers will be. Infrastructure and tools vendors will more often target the ASPs as their customer and channel partner. However, the application vendors are having a more difficult time deciding if they should become an ASP or sell their applications to and through ASPs. The decision will depend on the type of software they are selling.

For more information on how the ASP will affect the software industry, please contact Clare Gillan at cgillan@idc.com.

ASPs' Effect on Hardware

Application service providers' impact on the hardware industry could be enormous. Hardware platforms will be crucial to an ASP's ability to leverage a one-to-many delivery model. IDC believes application service providers may become catalysts for server and storage consolidation and server clustering. Additionally, ASPs will require the hardware to include advanced functionality, such as physical or logical partitioning of server and storage resources.

For more information on how the ASP will affect the storage industry, please contact John McArthur at jmcarthur@idc.com. For more information on how the ASP will affect the server industry, contact Vernon Turner at vturner@idc.com.

ASPs' Effect on Communications

For network companies, the ASP model presents an enormous opportunity. According to IDC, the whole point of this approach is to use high-speed network connections to reduce internal spending on systems, software, and support staff. Network service providers must prove their networks are up to the task in terms of performance, reliability, and customer service. Because applications services are network based and network delivered, NSPs willing to step up to the challenge are well-positioned to play a leading role in the market.

For more information on how the ASP will affect the communications industry, please contact Steve Murray at smurray@idc.com or Rick Villars at rvillars@idc.com.

ASPs' Effect on Channels and Partnering

The success of the ASP model will come from the partnership networks that are built to include communications, hardware, and software vendors as well as professional service firms. Rather than rush to form ASP partnerships, vendors should select strategic partners to perform specific functions, build market presence, and then use this success to develop policies and programs to allow them to expand their ASP networks.

For more information on how the ASP will affect channels, please contact Steve Graham at sgraham@idc.com.

IDC's Report – Available at No Charge on IDC.com

IDC recently published The ASPs' Impact on the IT Industry, An IDC-Wide Opinion (IDC #B20323). In an effort to enhance industry discussion and company planning efforts, this report offers succinct definitions, identifies major trends and issues, and highlights the implications for software and hardware vendors, services firms, communications companies, and channels partners. Additionally, this report examines the ASP delivery model and factors that will cause competition and cooperation within the market. It identifies major trends and issues within the ASP environment and discusses ASPs' implications for software and hardware vendors, service firms, communications companies, and channels partners. The report also provides a thorough definition of ASP and the ASP delivery model.

This report and an accompanying PowerPoint presentation are available for no charge by visiting http://www.idc.com/Data/Software/content/offer/asp/default.htm and downloading the files.

About IDC

IDC delivers dependable, relevant, and high-impact data and insight on information technology to help organizations make sound business and technology decisions. IDC forecasts worldwide IT markets and technology trends and analyzes IT products and vendors, using a combination of rigorous primary research and in-depth competitive analysis. IDC is committed to providing global research with local content through more than 500 analysts in 42 countries worldwide. IDC's customers comprise the world's leading IT suppliers, IT organizations, and the financial community. Additional information can be found at http://www.idc.com. IDC is a division of International Data Group , the world's leading IT media, research, and exposition company.

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