Outsourcers taking up the ASP mantle

Large outsourcers and systems integrators have always tiptoed around the application service provider market, preferring to forge relationships that kept them behind the scenes. However, recent news from EDS that it is partnering with messaging ASP Mi8 marks a significant shift in this pattern.

That's good news for companies that have been wary of using an ASP because of questions about financial viability and longevity. With established outsourcers backing a deal, customers can feel more secure. In addition, companies benefit from outsourcers' professional services and expertise, on top of hosted applications, from a single source.

EDS recently announced it would resell Mi8's hosted Microsoft Exchange service and plans to codevelop and codeploy additional applications, such as virtual workspaces. The partnership is interesting because EDS is taking a frontline position in delivering an ASP service to its customers, a role outsourcers have avoided.

IBM has had its ASP Prime (now xSP Prime) program since 1999, providing technical support and consulting services to independent software vendors that want to deliver wares over the Internet. KPMG joined Qwest in 1999 to launch ASP Qwest Cyber Solutions, eventually pulling out of the venture when the ASP market began to crumble. But in both cases, it was the ASP that handled customer accounts. Back-end support was the system integrators' focus.

"This is a first step toward the broader acceptance of partnerships and relationships between ASPs and myriad system integrators and services companies," Karen Moser, an analyst with IDC, says of the EDS-Mi8 relationship. "This is a bellwether for what's going to happen in the industry."

Analysts also have been skeptical about the future of ASPs. Dozens have gone out of business since the market emerged in the late '90s. In the past few months, ASP pioneers such as FutureLink and Breakaway Solutions have closed, and USinternetworking filed for bankruptcy protection. At the same time, though, analysts say software as a service is here to stay. The question is who will be delivering the applications.

Gartner analyst Ben Pring predicted in a recent report that software vendors, telecom suppliers and outsourcing companies will "embrace the ASP model and utilize it as just another offering in their portfolio - one that will, over the course of the next five years, come to represent between one-quarter and one-third of their revenue."

How many pure ASPs will be left?

"Few," Pring says. "Very few."

That means companies can expect more partnerships and acquisitions among ASPs and outsourcing companies, analysts say, as well as the development of homegrown ASP services. IBM, for example, points to its new pay-as-you-go hosted offerings as ASP services.

Tim Morton, president of EDS E-Solutions, U.S. and Latin America, says more customers are demanding hosted applications, especially messaging and collaboration. EDS announced its partnership with Mi8 with a customer, Internal Association of Athletics Federations, already in hand, and claims several more are "in the pipeline."

Laurel McElreath, service line director for messaging and collaboration at EDS, says the firm has offered hosted applications in the past but that the partnership with Mi8 takes that "to a different level." Customers aren't looking for huge outsourcing packages, she says. The need is for a single service that can be implemented and deployed quickly.

"The idea was to partner with someone who could deliver a more cost-effective [service] to our clients, rather than investing in and developing the technology in-house," McElreath says. n