ASP Shakeout Could Benefit Buyers

As numerous hosting enterprises encounter hard times, stalwart providers pick up the slack.

As the enterprise ASP industry continues to evolve, an interesting trend is playing out: Companies that converted to application hosting from other industries are hitting hard times, while pure-play providers are quietly emerging as leaders.

That trend, experts say, could make it easier for current and potential customers to determine which application service providers to align with.

Companies that joined the ASP field from other pursuits, such as Breakaway Solutions Inc., a systems integrator; FutureLink Corp., a Citrix Systems Inc. reseller; and Interliant Inc., a Web hosting company, have all had their share of troubles recently.

Breakaway CEO Gordon Brooks resigned from the Maynard, Mass., company suddenly late last month.

FutureLink, of Lake Forest, Calif., is in the midst of a major restructuring and is "no longer emphasizing the ASP market in the U.S.," said CEO Howard Taylor.

And the situation appears equally as grim at Interliant, where officials of the Purchase, N.Y., company announced last week that the company will exit ASP sales of e-commerce, customer relationship management and enterprise resource planning software. Instead, officials said Interliant will return its focus to managed and hosted messaging services.

"Its a tough marketplace out there. I think were just going to see more of this," said Carrie Lewis, an analyst with The Yankee Group, in Boston. Lewis said the ASP arena is particularly dangerous for companies whose core business isnt applications hosting.

Ron Hozjan, chief financial officer of Enerline Restorations Inc., a Calgary, Alberta, oil services company, reflected on his decision to become a FutureLink customer in 1999. "Theyre basically our IT department," Hozjan said. "Im concerned more so of their level of service going forward."

Keeping users believing in ASPs has largely fallen to so-called pure-play ASP vendors, such as Corio Inc., of San Carlos, Calif., and USinternetworking Inc., of Annapolis, Md. Both have modest plans for the next 12 months: continue growing the core and enter more vertical markets, such as business-to-business exchanges and government sales.

Much like when packaged software penetrated the customized software industry 20 years ago, USinternetworking CEO Andy Stern said, "This is not an environment to spread our resources more thinly. ... You didnt need to write [software]; now you dont need to run it."

"Our view on the ASP space is, you need to be in it, and you just need to be in it," Corio CEO George Kadifa said.