ASPs Gain Familiarity with Corporate Officers and IT Professionals But Significant Evangelism Challenges Lie Ahead, IDC Reveals

BOSTON, MA – JUNE 29, 2000 – A new IDC survey of 400 U.S. corporate officers (CEO/CFO/COO/SVP/VP) with influence over technology decisions reveals that more than half of the companies surveyed have familiarity with the term application service provider (ASP). This percentage dropped to 6% when the respondents were asked if they had "detailed knowledge" about ASPs. Only those sites defined as leading-edge technology adopters have a significantly higher proportion with detailed knowledge (43%).

"Despite the coverage in the global trade and business press, the awareness levels are still very low, particularly within smaller companies. ASPs have been busy building partnerships and infrastructure. To retain the momentum and interest they have gained within the IT, investment, and press communities, they must turn their attention and resources to educating customers and proving out the vision," said Clare Gillan, group vice president of Applications and Information Access research at IDC, speaking at IDC's AppSourcing Forum at the Sheraton Boston Hotel. "This is a lot to ask given the complexity of the challenge and the newness of the model. Being an ASP is a high-risk position. Only those that can balance building a robust infrastructure and partnerships while reaching out to customers will survive."

The good news is that after the term ASP was further explained, just over one-third of the companies reportedly would consider using an ASP. This proportion is higher than the 22% "would consider" finding that IDC received when it asked the same question of IT professionals four months earlier. The proportion of corporate officers that would consider ASP-delivered applications increases at large companies, particularly in the insurance/other finance industry, and with leading and mainstream adopters. Overall, the two most important factors influencing the decision to use an ASP were the expected improvement of total cost/performance of IT investment and a shorter implementation cycle, the IDC survey showed.

"We asked corporate officers if their IT specialists would agree with their opinions of ASPs and the consideration of ASP use," Gillan said. "The responses were lukewarm – meaning only a little more than half of the corporate officers considering ASP use for their company thought their IT specialists would consider an ASP for use. Another half thought their IT specialists' opinions concerning ASPs would be mostly consistent with theirs. The time-to-business-benefit and the potential improved cost/performance

appeal to the business leader. However, in practice, we are seeing a mix of corporate officer-driven, IT-driven, and jointly driven ASP decisions."

IDC's new study, ASP Adoption by Market Segment: C-Level Executives, reveals that even though the non-technical corporate establishment seems to have a more favorable attitude toward the ASP concept than their IT specialists, only about 42% of the corporate officers have veto power over IT decisions. "This

confirms IDC's belief that ASPs must target corporate officers and other business decision makers while working to gain IT support," Gillan added.

Respondents' main reason for not considering an ASP was the feeling that the use would not provide incremental value. Large sites were more concerned with anticipated lack of security of corporate data.

Overall, the companies contacted preferred an applications software vendor or a dedicated ASP to provide ASP services. However, this mainly described the behavior of small companies, while most industry categories preferred an Internet service provider over other firms listed.

Additional findings from IDC's ASP Adoption by Market Segment: C-Level Executives include:

* Seven out of ten large sites — almost double the overall average percent — expect to pay more for better quality services from an ASP than in-house services could offer.

* Most companies with a preference would rather pay for ASP services based on transaction volume versus number of users, transaction value, or other value measurements.

* The public Internet was cited as the preferred access method, except at large companies, which prefer a private network.

A separate newly released study by IDC, ASP Adoption by Market Segment: IT Professionals, provides a different view on ASP offerings. According to data published by IDC's Global IT Survey of more than 1,000 CIOs, IT directors, and IT managers in the United States, 41% of survey respondents were familiar with the term ASP but only 22% considered the use of an ASP for an application in the organization. Notably the surveys were conducted four months earlier than the C-level executive study.

"Again, IDC's survey data indicates medium and large companies are almost twice as likely as small firms to be familiar with the term ASP," Gillan said. "Suppliers believe ASPs are for small companies. Not only are the larger companies more familiar with the concept, but IDC has demonstrated in four separate studies since 1997 that larger companies are equally or more interested in considering working with ASPs."

ASP Adoption by Market Segment: C-Level Executives (draft available July 10, 2000) investigates familiarity and considered use of ASPs as well as the factors that influence the decision to consider or not consider the use of an ASP. Type of firm, type of access preferred, and type of payment method are also examined. Results, representing the North American market, are analyzed by industry, company size, and other adoption characteristics.

ASP Adoption by Market Segment: IT Professionals (draft available immediately) examines the level of ASP familiarity, use of ASPs by application type, the main reason for considering using an ASP, criteria used in evaluating an ASP, various expected services desired, and the type of ASP firm preferred. Most results are presented by site size, industry, and technology adoption characteristic. Results, representing the North American market, are analyzed by industry, company size, and other adoption characteristics.

Both reports are available for purchase by contacting Jim Nagle at or 508-935-4549.

About IDC

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