Application Service Providers (ASPs), the technology darlings of 1999, face a major shake-up. That’s the consensus among doom-and-gloom forecasters who insist the ASP market will undergo a major cleansing during the next few years.

In a recent report, Gartner described the “pending ASP meltdown,” predicting that “60 percent of about 480 current retail ASPs will be gone by the end of 2001 because of bankruptcy, lack of venture capital, mergers, and traditional competition.” The report also suggests that by 2004, only 20 of the 480 ASPs in the emerging $3.6 billion industry will remain as enterprise-class, full-service retail ASPs, while less than 100 will offer successful point and product solutions. They’ll share what will grow into a $25.3 billion industry in 2004.

Fact or fiction? Jim O’Reilly, a spokesperson for the ASP Industry Consortium, an advocacy group for ASPs, says it’s fiction.

“Companies evolve and change,” O’Reilly said. “The fact that giant companies like IBM, Microsoft, and Oracle have established ASP divisions tells you something about the health of the industry. The concept of delivering software as a service rather than an application is stronger than ever.”

Technological Darwinism
Despite O’Reilly’s bias, he could be right.

Paula Hunter, Chief Operations Officer of cMRun Corp., a consumer ASP that offers software and games in Hudson, MA, says major changes in the ASP industry were inevitable. “It’s natural Darwinism,” she said. “Consolidation, rather than a ‘shakeout,’ is what’s going on. You’ll see a strengthening of key players as well as specialization and a focus on particular markets. A consolidation means enhanced and better services.”

Art Williams, an analyst at information technology advisory firm Giga Information Group in Cambridge, MA, says the big ASPs will only get stronger with many of the surviving start-ups undergoing consolidation. He suggests that instead of weakening the industry, consolidation “strengthens it, because the demand for one-stop shopping, which is one of ASPs’ greatest selling points, only intensifies.”

Williams said that tumbling stock prices don’t necessarily reflect a weak ASP industry. “Virtually all tech stocks have tanked. And calling what’s happening a ‘shakeout’ only triggers unwarranted fear, because it’s inconsistent with the numbers.”

Williams contends that strong revenue growth from leading ASPs is a good indicator for the industry. Another plus is that leading ASPs are now focusing on profitability. “Until recently, the focus has been on market share and growth,” Williams said. ”My prediction is most will be in the black sometime in 2001.”

ASPs still need workers
But just because they are moving toward profitability, ASPs aren’t using that as justification to hire fewer workers, claim Hunter and Williams.

“There is a continuing need for operations, Web development, and support people,” Hunter said. “Practically all ASPs can’t find enough DBAs (database administrators).”

Software engineers who do the development work are also very much in demand. ASPs also need test engineers, who have the option of pursuing a defined career path because testing is tedious work, Hunter said.

If you have both technical and marketing skills, it seems that the sky’s the limit with an ASP. “In fact, many of the big firms are hiring junior marketing people with technical skills and training them,” he said.

If you’re on the consulting end, there is strong demand for SIs (system integrators) to get customers up and running. On the sales side, “you can almost name your own price if you have outsourcing sales experience,” Hunter said.

“Overall, ASPs need IT workers with Web-development skills who can convert client-server programs to Web-enabled or HTML programs,” Williams said. ASPs are also hiring computer security and security management specialists.

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