Interest in ASPs, Web hosting picking up

Enterprise customers in growing numbers are taking a look at application service providers and Web hosting companies as they seek ways to make their IT operations more efficient by using on-demand services.

Analysts say the ASP and Web hosting markets are seeing a rebirth as bigger outsourcers such as HP and IBM focus on utility computing, where customers get IT services on a pay-as-you-go, as-needed basis. The maturing and consolidation of the markets to a few, stable providers also is helping turn the tide for what were considered risky options just a few years ago.

"ASPs, managed service providers and Web hosting providers have served as a stepping stone to overall utility computing," says Jeff Kaplan, managing director at ThinkStrategies, an IT consulting firm. "At the Utility Computing World Conference I heard CIOs from major companies talking about Web hosting and ASP models like Salesforce.com, which they equated to utility computing. It's fascinating to hear them use these terms interchangeably. They see them all as being interrelated."

Despite lingering challenges, the ASP market is expected to more than double from $1.6 billion last year to $3.5 billion in 2008, according to IDC. The Web hosting market also is predicted to see strong growth, expanding from $5.5 billion in 2003 to $10.4 billion in 2008.

The research firm expects the biggest growth to happen for service providers that deliver Web-native and Web services applications, such as Salesforce.com and Salesnet, with revenues skyrocketing from $666 million in 2003 to $3.7 billion in 2008.

"Interest in Web hosting and ASPs has been ramping up over the past eight to 12 months," says Ted Chamberlin, a principal analyst at Gartner. "A lot of clients had cut back for a long time, pared down their staff and been very conservative. Now they have to drive revenue and make their businesses run and move forward. Web and application hosters are just a really good logical choice, and now they're a much safer alternative."

Getting in deeper

For example, diversified industrial firm Ingersoll-Rand, of Woodcliff Lake, N.J., became a customer of Corio in 2001 and has recently expanded its use of the ASP's outsourcing services.

"We started off small with a couple of applications to test the water," says CIO Barry Libenson. "We had successful results and got a lot of benefits with things that we didn't do well ourselves like really reliable disaster recovery, 24-7 monitoring. And we have access to a team of developers that are skilled at applying Oracle patches."

Happy with the initial partnership, Libenson began moving more Oracle applications to Corio and today has only "10% of the equipment on-site that I had three years ago." That means fewer headaches and the ability to dedicate IT staff to other, more business-focused tasks, he says.

He estimates he's saving between 20% and 40% by having Corio host and manage his Oracle application environment.

"The other beauty is that it's a variable-cost model so I can grow or shrink that environment on an as-needed basis," he says. "I don't need to worry about hiring people or doing reductions if we downscale."

Such experiences are once more driving businesses toward ASPs and hosting service providers, analysts say.