Software As a Service Is Poised for Rebound

The services we once expected from ASPs are back, but now we refer to them as business process outsourcing.

You dont hear many people talking about ASPs, or application service providers, except in the past tense. Plenty of those ASPs bloomed and wilted with the dot-com boom and bust, but what those vendors did—provide applications on demand—is alive and well and poised for a rebound.

This time, though, you might want to call it business process outsourcing, and you might want to call its vendors business service providers. Those were the terms being thrown around last week at the Gartner Symposium/ITxpo in Orlando, Fla., where Gartner outsourcing analysts Linda Cohen and Allie Young gave their "Outsourcing Outlook" presentation.

Cohen attributed much of the failure of ASPs to customers demanding extensive customization on the part of the service providers. That blew apart the ASPs business model, resulting in the subsequent marketplace carnage.

She also suggests the time is right for business processes on demand. In her presentation, Cohen said companies need to find the applications they use that are not core to their business and that can be utilized as a commodity service. "Companies dont need to overspend on utility-type services," she said.

Vendors are creating utility offerings so you can buy business services and get software as a service. "Theyre creating capabilities and expecting that you will buy in new ways," she said. Indeed, it does sound a lot like IBMs On Demand strategy and HPs Adaptive Enterprise, which those vendors have been working on for a couple of years.

/zimages/1/28571.gifTo read more about IBMs On Demand computing, click here.

Will the new model work where the old ASP model didnt? "The same thing could happen. If you dont accept things their way, theyll go out of business. You wont be able to get extensive customization. It will become a different operating model for providers. Either they will go out of business or they will dump you," said Cohen.

A word to the wise: Maybe everyone can get it right this time.

Out and about

Prior to the talk by cohen and Young, Gartner presented its analysts keynote, in which experts highlighted what they view as the main theme in IT today: The use of service-oriented architectures will lead to the "agile enterprise" of tomorrow. Companies wont so much deploy applications as they will deploy an architecture that can be adapted to run applications of the moment.

With that as a backdrop, EDS announced at Gartner its Agility Alliance, a set of partnerships with leading hardware and software vendors. The reason? Unlike rivals IBM and HP, EDS does not make hardware or software. While this has enabled EDS in the past to claim vendor agnosticism and make a best-of-breed pitch to prospective customers with regard to the vendors it works with, in practice, EDS consultants were acquiring a diverse portfolio of expertise that was, well, just a bit too diverse.

Instead of spreading expertise thinly across many vendors technologies, EDS aims to concentrate that expertise on just a few industry leaders, thereby cutting training costs and maintaining a portfolio of skills that can be broadly applied. Initial members of the alliance are Cisco, Dell, EMC, Microsoft, Sun and Xerox.

EDS touts the $13.6 billion combined R&D budgets of these partners, which is, at least to some degree, being spent on EDS behalf. EDS officials claim that by getting close to these vendors and their future technologies, EDS can gain insight it can use to steer its customers technology architectures. To be announced in the coming months are EDS application and business process partners.

Meanwhile, IDC and Meta Group announced offshore outsourcing research numbers: Both predict 20 percent annual revenue growth. This growth exceeds that of outsourcing generally, a conclusion Gartners Cohen and Young also expressed in their talk. Meta said most IT organizations will have an offshore strategy by 2006.

IDC said the worldwide market for offshore IT services will grow from nearly $7 billion in 2003 to $17 billion by 2008. Most offshore spending by U.S. companies will be on applications, particularly custom application development, application management and systems integration, IDC reports.

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