Companies ignore ASP model, despite potentially big savings

Application Service Providers (ASPs) have yet to convince UK companies that they should adopt their model of leasing IT applications.

The Durlacher Quarterly Internet Report reveals that take-up among SMEs lags far behind that of the corporate sector.

Just 29 per cent of small or medium-sized businesses said they had or would consider outsourcing any of their applications, compared to 40 per cent of corporates. Only eight per cent had already done so, compared to 21 per cent of larger firms. This is despite consistent marketing of the ASP model as the best way to reduce software costs for SMEs.

Durlacher's report said that key barriers were issues of security, cost and reliability.

"Security issues centre around the area of data integrity of a third-party hosted solution rather than the availability of technology that addresses security, although both will be important moving forward," the report said.

"Although the ASP model is built on the premise that it will reduce cost, pricing and billing policies are still under development and need to be clarified in order to drive demand," it added.

ASPs have come under fire in recent weeks from analysts. The Giga Information Group warned earlier this month that firms should refrain from committing to any single ASP, as a wave of consolidation will soon hit the industry.

Two weeks ago, Gartner predicted that most ASPs would be dead within three years but that the value of the European ASP market in 2004 would be around $7.5bn.

However, Durlacher believes the model itself will eventually be more widely adopted with the advent of low-cost, always-on, high-speed internet connections, and major initiatives from Sage, Siebel and Microsoft.