Two ASPs to merge amid increasing consolidation

Application service provider Agilera says it will acquire rival Applicast at a time when many ASPs are either going out of business or directing customers elsewhere.

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Application service provider Agilera on Tuesday said it will acquire rival Applicast in an all-stock transaction.

The companies, both privately held, said they do not expect any layoffs. Terms of the deal were not disclosed.

The merged company will retain the name Agilera and bring together complementary services. Menlo Park, Calif.-based Applicast has focused on bringing business management applications based on Siebel Systems and SAP software to the manufacturing industry, while Englewood, Colo.-based Agilera has targeted midsized companies.

The deal comes at a time of rapid consolidation in the application service provider (ASP) industry. In the past few months, several players, including Red Gorilla and HotOffice Technologies, have gone out of business. HotOffice directed its customers to rival Intranets.com. But in some cases, the customers of failed ASPs have been left in limbo.

Initially, ASPs gained popularity based on the concept that customers would rather not have to install or manage software themselves--a process that is time-consuming, expensive and complicated. ASPs would host the applications that customers could access from any desktop for a fee.

Market research group AMR Research predicts the ASP market will reach $4.7 billion by 2004, with a compound annual growth rate of 153 percent, while Gartner predicts the worldwide ASP market will reach more than $25.3 billion by 2004.

The conflicting projections should be expected, as most analysts believe the industry is still tweaking business models and pricing plans.

The industry has caught the attention of leading technology giants such as Oracle, IBM and Dell Computer. Oracle has partnered with several ASPs, including Center 7 and Agilera.

Agilera said it hopes that the merger will position the company as one of the leaders in the ASP industry, giving it the ability to target a larger client base while offering more services.