ASPs riding high after 'hype' sneers

Application service providers (ASPs) earned revenues of nearly $1bn last year, and the trend should continue, defying cynics who say the service model is founded on hype.

ASPs let companies rent software on a per-user, per-month basis, and are gaining popularity with bigger organisations.

Researcher IDC says ASP revenues will increase by 89 per cent year on year, from $986m in 2000 to almost $24bn in 2005.

But the surge in revenues is not a signal the model has matured, it warns, and users should be cautious with software rental.

The market is still immature, and users must take in choosing an ASP or selecting an application to outsource, says senior IDC analyst Jessica Goepfert.

"Ask hard questions, check references, check the financial viability of the company and make sure they have a contingency plan in place," she said.

"Customer-facing companies are buying transactional applications from ASPs, while companies wanting to improve their supply chain are spending on enterprise resource planning systems."

IDC predicts further consolidation among ASPs - many companies will go out of business or be taken over.

"They need to move beyond delivering definitions to proving they can deliver value," warned Goepfert.