I-Managers See Big Returns From ASPs

By Mel Duvall  |  Posted 2001-10-15

Companies that have implemented hosted business software from application service providers have been experiencing eye-popping returns on their investment, a study by research firm IDC has shown.

The study, one of the first detailed looks at ROI for the emerging sector, is bound to give the industry a much- needed shot in the arm. But the news isnt all good for ASP vendors. IDC said it will soon lower its growth forecasts for the sector because of changes in buying decisions brought on by the current economic slump.

"The study clearly shows that there are significant quantitative and qualitative benefits to be gained [from an ASP implementation]," said Meredith Whalen, vice president of IDCs ASP and Internet services research. IDC studied 50 ASP implementations and found that they yielded an average ROI of 404 percent over five years.

On the flip side, though, discussions with corporate IT managers have shown that they are delaying investments in new initiatives, Whalen said. Also, companies generally use ASPs to implement new applications, not replace existing ones. Whalen said IDC will be lowering its estimates for the sector. Previously, the consulting firm had forecast that the market would grow from $986 million in 2000 to $2.1 billion in 2001, and that it would reach $24 billion in 2005.

The study found that companies gained the biggest bang for their bucks from implementations that solved specific problems -- such as time, travel and expense management -- and involved little or no customization. Those returns were often greater than 1,000 percent.

"A key thing to note is that those returns were all quantitative -- they could be measured in dollar value," Whalen said. "People also told us they were gaining benefits such as peace of mind, access to the latest technologies and an ability to focus on their core business."

The results rang true with ASPs such as SupplyWorks, which offers a hosted supply management system. Last week, it completed an implementation at 950 Barnes & Noble stores that will let individual outlets order operating supplies via the Web.

SupplyWorks CEO Jeff Herrmann said a typical rollout requires an up-front investment of about $300,000 to $600,000, and the payback comes in less than a year.

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