Instead of buying and hosting software on corporate networks, communications firms and software makers are touting software rentals over the Internet as a cheap and hassle-free way to keep up with the latest in software technology.
But for the idea to be successful, equipment makers will need to upgrade networks and provide new hardware to handle the increase in Internet traffic, as more and more businesses access software over the Internet.
To capitalize on the growing trend, Cisco Systems, Lucent Technologies, Nortel Networks and others have fashioned similar strategies to tackle what is known as the application service provider (ASP) market. Analyst firm Dataquest predicts the market will reach $23 billion by 2003.
These networking firms are creating special packages of equipment and partnering with hardware and software makers to provide the technology that Internet service providers (ISPs) and telecommunications carriers need to offer reliable software rental services online.
"Anything that drives more Internet traffic is good for the equipment guys. It's a [sales] channel for their gear," said Mary Johnston Turner, vice president for industry analysis at Northeast Consulting Resources.
Offering software over the Web is a logical next step for ISPs, which already provide Net access and often house Web sites on their servers, said Bill Burger, senior director of Cabletron Systems' service provider market.
"Application hosting is an evolution of the Internet service provider market, but there's more rigorous requirements," he said. "They need a higher capacity through the network, there's more rigorous quality of service requirements, much more security concerns because of the data transmission."
Although the market is still young, a recent Infonetics Research study found that 24 percent of all service providers offered application hosting in May of this year. Yet 60 percent plan to offer software rental services by May 2000, in a push to add services to increase profits.
To highlight the interest in the industry, more than 200 technology firms have come together to form the ASP Industry Consortium, which promotes the concept of ASPs and standards for the technology.
Dataquest analyst John Coons applauded the strategy of networking equipment providers in the growing application service provider market.
"Service providers don't want to be in the integration business and spend a lot of resources going out and evaluating individual products," Coons said. "They want an integrated solution. Cisco, for example, can say we have most of the pieces and partnerships where we can put together a total solution to distribute content and improve performance on the Internet."
The network equipment makers say they're not only looking to partner with traditional phone companies and ISPs, but also with application service providers such as US Internetworking and Corio, as well as data hosting centers like Exodus Communications.
"We're trying to build different models for all the different players," said Eugene Lee, marketing vice president for Cisco's applications technology group.
Essentially, networking firms plan to sell hardware like routers and switches so service providers can upgrade their networks. Also, firms aim to offer virtual private network (VPN) technology to allow users to access corporate data and software over secure Internet connections while on the road.
Networking firms also plan to offer management software that will allow a network manager to give bandwidth priority to important applications, such as accounting software, over applications like email, to ensure employees always have timely access to shared software.
Cisco has signed a number of partners, including IBM, Microsoft and Citrix, to participate in its ASP push, and has launched its own certification program for service providers that use Cisco equipment.
Nortel Networks recently announced an ASP partnership with Hewlett-Packard, and with software companies such as Software.com and Concur Technologies. Lucent Technologies has also signed a mix of partners, including Sun Microsystems.
While all the networking firms say they're going after every type of service provider, Cahners In-Stat Group analyst Kneko Burney believes Lucent and Nortel--which have traditionally sold voice equipment to telephone companies--will do best by focusing on that familiar market.
"Cisco has the most developed and extensive strategy to develop and serve the market, going after everybody, with emerging service providers and traditional players," Burney said. "Lucent and Nortel will have a stronghold in their traditional markets."