ASP market sees growth, in hosting infrastructure

Application service providers have morphed into infrastructure service providers as the model of renting hosted software continues to change and mature.

Application service providers have morphed into infrastructure service providers as the model of renting hosted software continues to change and mature.

Despite the demise of retail ASP Always There last October, the market is seeing substantial growth, says Microsoft New Zealand enterprise manager Terry Allen.

Revenue from ASP licences contributes 8% to Microsoft's enterprise server licensing revenue, says Allen. ASP revenue has increased 125% year on year for the past two years and he expects this will continue for the next two.

“Most of the licences are server, not desktop. ASP was originally about doing things on the desktop. Now it’s much more operational. The main products delivered this way are Windows Server, Exchange, BizTalk and SQL.”

Microsoft has 11 local companies providing ASP licences – Computerland division AppServ, Conduit International, GDC Communications, Intergen, Olympic Software, Pacific Software Technology, Telecom, TelstraClear, ZZ Inc, Axon and Unisys – with GDC and the telcos being the largest. Allen says Microsoft is also talking to another 200, mostly niche developers, about the programme.

“I think the ASP market is growing in a healthy way. We have been through the transition from over enthusiasm to pragmatic adoption. Customers use it when it provides better TCO [total cost of ownership] and they don’t view running IT as a core competency with their organisation.”

Unisys is seeing most demand in hosting infrastructure services to organisations with up to 50 staff, says outsourcing director Gerrard Kaczmarek. Unisys was one of the original big names in the ASP market, which burst on to the scene during the dot-com bubble. However, it folded the division into its outsourcing business last May.

Unisys is now predominantly hosting CPU processing and storage for its ASP customers, most pay monthly and the contracts are for multiple years.

“We’re still monitoring the ASP environment and have the ability to provide pure ASP applications if a need arises," says Kaczmarek. If you look at the existing players today they’ve probably all taken a step back and are doing hosting of infrastructure. Most have adapted their model.

“In October-November we definitely saw more interest coming through, but it was from potential partners such as software distributors, ISVs and consultants -- not so much end-user organisations.”

GDC Communications’ ASP business, iVASP, has only one customer, which uses a single standalone application -- a bureau service providing accounting systems for schools. The majority outsources its entire desktop all the way to line-of-business applications by Navision, Sage, Great Plains and Geac.

“IVASP provides the infrastructure and all the components to run Great Plains or Navision while partners such as Ernst & Young do consulting and customisation.”

Last year GDC signed a deal with Telecom's advanced solutions group (into which the Telecom/EDS/Microsoft ASP esolutions was folded) whereby Telecom has become an iVASP reseller.

“Telecom’s Private Office [IP network] product lets us deliver cost effectively to customers because bandwidth was always quite a cost component of delivery," says iVASP's Jimmy Baroutsos. Traditionally data networks were about 30% of delivery cost and now that is down to 20%.”

Baroutsos says iVASP has always focused on small and medium-sized organisations rather than the bigger corporates.

“Once you get to a certain size, the cost benefits of the ASP model disappear. Around 200 users on a site is the cut-off point.”

He says ASP is a major part of GDC’s strategy and ex-Microsoft MD Geoff Lawrie coming on board is a strategic advantage to the business and its credibility.

AppServ also focuses on providing infrastructure and security services such as OS version control, backup and tape, moves, adds and changes, file system structuring, firewall, policy management, web browsers, mail staging, VPN, virus control, configuration and set up. As far as applications go, customers can bring in whatever they want and AppServ will look after it, though the company doesn’t offer a smorgasbord of apps for customers to choose from.

AppServ general manager Graham Clarke says that the customer knows their business and what they want to use.

"Every business is looking strategically use its core applications to gain competitive advantage. To deliver them in a utility way is impossible. The security and infrastructure layer are the true utilities.”

Last year AppServ doubled its revenue and reached its revenue goals. It claims to be now profitable.

Greg Mikkelsen of Greenwood Technology describes the company’s ASP business as still being built block by block. Greenwood now mainly does hosted applications and has servers at the TelstraClear data centre.

It handles browser-based and Citrix-based thin client applications and Mikkelsen says Citrix seems to be ‘coming of age’ as a means of distributing applications.

“Two years ago when you were talking Citrix, only a few people saw the benefits. Now it’s much more mainstream. The understanding of it as a cost-efficient way to distribute applications is increasing. The benefit with Citrix is that you can take an existing application and can distribute it immediately. You don’t have to redevelop the whole application. Customers will do that, while they’re re-evaluating new applications so that upgrading their technology becomes a process rather than an event.”

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