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PBI Media RESEARCH STUDY: U.S. DEMAND FOR NETWORK HOSTED APPLICATIONS WILL INCREASE TWELVE-FOLD BY 2004: APPLICATION SERVICE PROVIDERS (ASP) TO GENERATE $13 BILLION IN REVENUE July 12, 2000 - Network Hosted Applications PARSIPPANY, NJ, July 12, 1999 -- Within the next five years, the U.S. market for Application Service Providers (ASPs) will grow from $1.1 billion to $13 billion, with larger businesses accounting for almost 70 percent of the growth according to a study from PBI Media, based here. E-Commerce will become the leading application, representing 52 percent of ASP revenue by 2004, compared to 28 percent in 1999. Among large companies with between 500 and 100,000 employees, only 4 percent are currently using ASPs for E-Commerce. But more than 70 percent of these large businesses that participated in the study, indicated that they were very likely to utilize an ASP for E-Commerce within the next four years. Businesses also expect ASPs to supply a broad range of applications for their employees. These include applications in the following categories - messaging, collaboration, office automation, data management and various types of business applications. "Very large companies, those with 2,500 or more employees, accounted for only 21percent of the users of these Internal-oriented ASP applications in 1999," said Terry White, a Senior Director of PBI Media and lead analyst for the study. "But this segment is projected to reach 55 percent of ASP users by 2004." "ASPs presently view small and mid-sized businesses as the primary target market for their outsourcing services," said White. "The assumption has been that these smaller businesses are more likely to outsource the development and hosting of various applications because they don't have the IT resources that the larger enterprises have." However, according to the research, 44 percent of large enterprises already outsource the hosting of their web site. And more than 60 percent of these large businesses indicated that they use outsourcing as one of their methods for obtaining software. This increasing trend toward outsourcing among large companies was also evident in another PBI Media research study earlier this year on the market demand for converged network services. In that study, large companies indicated a preference for using managed services at 81percent of their sites that would be connected to next generation converged networks. In contrast, managed services are used at only 29 percent of corporate locations served by existing data networks. In order for ASPs to penetrate the large enterprise market, they will have to demonstrate strong service and support and offer application-specific Service Level Agreements (SLAs). "These were the two most important decision criteria that large businesses cited for selecting ASPs," according to White. These larger firms will utilize ASPs for applications such as E-Commerce and collaboration, because the ASPs have the expertise in these areas that the enterprises lack. That will enable faster implementation of these leading edge applications. The study analyzed the services and marketing strategies of twenty-five leading ASPs. A few of the major ASPs are focused on large businesses as their primary target market. These include Qwest Cyber.Solutions (NYSE: Q); Sprint (NYSE: FON); UUNet, a division of WorldCom (NASDAQ: WCOM); and Capstan. "These ASPs have the support structure that is necessary to serve the bigger enterprise customers," according to Rick Kent, PBI Media vice president who supervised the study. "However, the majority of the ASPs are currently executing a niche marketing strategy targeted at small and mid-sized businesses." Examples include Interliant (NASDAQ:INIT) offering collaborative applications, TriZetto (NASDAQ:INIT) serving the healthcare market, and Pandesic, a joint venture between Intel (NASDAQ:INTC) and SAP (NYSE: SAP), focused on E-Commerce. The research study - which included interviews of more than 300 large, mid-sized, and small businesses -- assessed the primary factors that will drive the demand for network hosted applications in these three market segments. In each segment, the demand was analyzed based upon several key variables - size of the company, industry classification and specific types of applications. The most popular ASP application was different in each of the three market segments. The study also analyzed how other market factors varied in each of the three segments. These factors included the most important reasons for using ASPs, the decision criteria for selecting ASPs, an assessment of cost savings benefits, and the leading reasons for not using ASPs. ASPs are service firms that deploy, host, implement, manage and support applications from a central data center across a wide-area network, such as the Internet or leased lines. End-users access these applications remotely and usually pay for them on a per-month basis. Because a firm no longer has to buy, store and upgrade software, it can slash costs in its technology department and concentrate on core competencies. ASPs have a huge potential as companies seek to outsource applications such as e-mail, e-commerce, videoconferencing, as well as customer relationship management and enterprise resource planning software. The study entitled, "Network Hosted Applications: U.S. Market Demand and Segmentation Analysis" is available by contacting PBI Media at 973-884-0100 or http://www.thephillipsgroup.net. PBI Media, a global professional services company with offices in Parsippany, NJ, London and Washington DC, specializes in market intelligence for the telecommunications and information technologies industries. In addition to conducting primary research studies, the company offers a comprehensive range of professional services, including custom consulting, InfoTracksm and TelecomTacticssm database products, professional conferences, market and competitive intelligence analyses and custom marketing programs. PBI Media is a division of Phillips International, Inc. (www.accessintel.com), a $300 million corporation headquartered in Potomac, Md., which offers a wide variety of quality publications and services for both consumer and business-to-business markets. Phillips is one of the leading publishers in America, with a fast-growing Internet business. |
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