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Study: Future rosy for rent-an-app market

With a healthy dose of market evangelism, the applications outsourcing market should kick into gear this year, laying the ground for a future growth spurt.

Kim Girard
Kim Girard has written about business and technology for more than a decade, as an editor at CNET News.com, senior writer at Business 2.0 magazine and online writer at Red Herring. As a freelancer, she's written for publications including Fast Company, CIO and Berkeley's Haas School of Business. She also assisted Business Week's Peter Burrows with his 2003 book Backfire, which covered the travails of controversial Hewlett-Packard CEO Carly Fiorina. An avid cook, she's blogged about the joy of cheap wine and thinks about food most days in ways some find obsessive.
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Kim Girard
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With a healthy dose of market evangelism, the applications outsourcing market should kick into gear this year, laying the ground for a future growth spurt, according to a new analyst report.

In the report released today, Framingham, Massachusetts-based International Data Corporation said it expects spending on services offered by application service providers (ASP) to reach $150.4 million worldwide this year. So-called ASPs deploy, host, manage, and lease packaged application software to customers from centrally managed data centers. Customers access the applications through a browser or dedicated leased lines.

Over the next several years, IDC predicts the ASP market will grow at a rapid clip to reach $2 billion by 2003, a whopping 91-percent four-year compound annual growth rate.

The IDC report is the firm's first-ever forecast for the nascent ASP market. ASPs include both smaller, specialized companies such as USInternetworking, Corio, ServiceNet, FutureLink, and World Technology Service, and the services giants, including IBM Global Services, Electronic Data Systems, USWeb/CKS, and Oracle Online.

While some of the industry's more established players now offer applications outsourcing, the market is new and vendors need to build industry confidence through established and successful long-term customer references, said IDC analyst Meredith McCarty. E-commerce will also drive the market, as many firms lack the staff and the knowledge to build Web-based e-business systems internally, she said.

"I think USInternetworking has been great in going out and evangelizing the concept," McCarty said. "The EDS and SAP announcement will also help the market. They're large, well-known companies [endorsing the idea]. That's what the market needs right now."

Last month, German software giant SAP signed an outsourcing deal with Plano, Texas-based EDS to provide enterprise resource planning (ERP) applications to companies that typically lack the technology staff or money to install the software. The service is priced between $425 to $660 per user per month, depending on the number of SAP licenses purchased. Customers must also pay an additional implementation fee.

Annapolis, Maryland-based USInternetworking has partnered with companies including PeopleSoft and Siebel Systems to provide HR and sales applications to customers.

And Redwood City, California-based Corio, which also has deals with PeopleSoft and Sun Microsystems, today announced an alliance with Flextronics, a manufacturing systems integrator. Under the agreement, Corio will host and manage ERP applications for Flextronics' manufacturing customers and integrate Flextronics' manufacturing applications with PeopleSoft's financial applications.