Industry analysts predict application service providers (ASPs) to be the coming model for business, yet today's ASPs often find that securing customers is their biggest challenge. Some companies have implemented successful ASP programs that significantly reduce costs and minimize risk, but others are reluctant to embrace an ASP.

The ASP model--outsourcing software applications ranging from small personal programs to enterprise-wide systems--allows organizations to hand over operation, maintenance and upgrade responsibilities for an application to an outside vendor. While this outsourcing can significantly reduce costs, it also relinquishes control and protection of mission-critical software and data.

U.S. companies have embraced the ASP model more readily than those in the U.K. and other European countries. Frequently, its adoption is met with resistance from large internal IT departments. This caution is warranted: although most industry analysts predict tremendous growth in the ASP market, they also predicted the shakeout experienced in 2000-2001.

Both ASPs and their customers can benefit from looking closely at how they approach working together. Companies turning to ASPs must be savvy when choosing both the ASP and the applications to outsource. ASPs, for their part, need to develop more effective education and marketing campaigns, establish their expertise through accepted certifications and apply commonly used e-commerce standards throughout their operations in order to further improve profitability.

ASPs: The Wave of the Future

ASPs provide access to applications that are housed outside their clients' businesses. The ASP takes responsibility for buying, hosting and maintaining the software, while the client "rents" the application software and receives it through a dedicated Internet or intranet connection.

Industry analysts agree that the growth of application service providers within the next few years will be enormous. It's just a question of how big the ASP market will be. More conservative estimates, such as one by International Data Corp., are that the worldwide ASP market will grow from about $693.5 million in 2000 to $13 billion by 2005. The Aberdeen Group is predicting an even rosier picture: 16.1 billion in 2005. And Zona Research (now the Sageza Group), reported last year that 63 percent of the companies it surveyed are already using an ASP to access an average of two to six applications.