ASP Market Stuck in First Gear

Growth is steady, but customers are still in dire need of education about benefits.

Outsourcing of all types is slowly beginning to build momentum in the middle market, driven largely by early adopters looking to streamline their businesses and a slowing economy that is forcing efficiency on IT managers.

But the big question many of these corporations are wrestling with is which parts to outsource, and thats whats keeping the market from living up to its hype and putting pressure on some of the players in the market.

"The ASP is not as unhealthy as people believe, but its also not as good as all the hype before the crash," says Ross Brown, president of Sound Consulting. "Any time you require a behavioral change, you can expect it to take three to five years. Were in year two."

Brown says that pragmatists are embracing the ASP model to avoid capital investments and minimize their operating risk. But he adds theyre still the early adopters, with the rest of the market still mulling over what to do in e-business.

This may help explain why a-Services—which came to market six months ago with a bundled network, appliance and desktop application service—has since unbundled the pieces. Simon Angove, director of product management at a-Services, says companies that have signed on still are outsourcing specific functions of their business rather than entire processes. He says widespread market education is necessary before that takes root, which is why a-Services is spending much of its effort training its partners on how to sell these services.

"Companies have to understand their core competencies and realize that they cant be all things to all men," says Angove. "This is not so much about resistance to ASPs as it is about Internet security and outsourcing in general."

A-services currently delivers two application lines: its Webtop Productivity, which includes Office and online storage, and Webtop Collaboration, which is focused on enterprise messaging. So far, the most widespread acceptance throughout midsize corporations among all ASPs has been enterprise messaging.

IBM likewise is seeing some new interest in outsourcing. Rick Ruiz, VP of sales for IBMs Eastern Region, says he recently made six sales calls to midsize businesses, and four of those involved outsourcing discussions. "Were seeing CEOs getting involved in these discussions for the first time," says Ruiz.

But exactly what models will work best in the ASP business remains uncertain. Only trial and error, and some time, will shed light on that.