ASP 101: Understanding the

Application Service Provider Model

Understanding ASPs
One of the key developments in the computing world
during the past 18 months has been the emergence of
Application Services Providers (ASPs). Market analysts
project that application service revenues will grow from
$2.7 billion in 1999 to $22.7 billion in 2003. However,
while ASPs have garnered a lot of attention in the technol-
ogy press, in the marketplace most potential customers are
either unaware of ASPs or do not clearly understand the
ASP model. Many enterprises who are familiar with ASPs
have taken a wait-and-see attitude. As a result, ASP market
penetration has been quite limited to date.
In this paper, BoozAllen & Hamilton will address some of
the key questions surrounding the ASP model including:
What are ASPs and what is the ASP business model
and value chain?
What are the different segments of the ASP market
and who are the key players in each segment?
What are the economics of the ASP model?
Is the ASP model viable and how is it likely to evolve
over time?
Emergence of the ASP Model
What Is an ASP?
Much of the confusion around the ASP model is due to
misconceptions as to what an ASP actually is. We define an
ASP as an organization that provides a contractual service to
deploy, host and manage applications for customers remotely from
a centralized location.
Specifically, the ASP, not the customer, owns or licenses
the application and sells access to it under a contract.
Typically, the ASP will provide multiple customers with
access to standardized applications that are commercially
available from independent software vendors (ISVs),
requiring little or no customization. The ASP will deploy
the applications from a centrally managed hosting facility,
typically a data center, and deliver the applications to cus-
tomers over the Internet or private networks.
An ASP provides the following value proposition to its
customers:
Lower capital costs and improved total
cost of ownership
Predictable monthly fees
Accelerated time-to-market
Scalable infrastructure
Access to market-leading applications
Core business focus
Below, Exhibit 1 identifies key ASP characteristics and
their present focus.
by Barry Jaruzelski, Vice President
Frank Ribeiro, Senior Associate
Randy Lake, Associate
1
An ASPs services should not be confused with traditional
outsourced application management services or with
Web-hosting services. Although ASPs provide both
application management and hosting services to their
customers, unlike providers of application management
services and Web-hosting services, ASPs and not their
customers either own the applications or license the
applications from ISVs. Application management services
are typically heavily customized for each individual cus-
tomer, while ASP applications are delivered under a
one-to-many model, with more standardized applica-
tions delivered to multiple customers; Web-hosting
services focus on managing the network and servers,
while ASPs provide application services as well.
Similarly, not every company providing Web-based appli-
cations over the Internet is an ASP. ASPs typically enter
into long-term (multi-year) contracts with their cus-
tomers, charge for access to the applications, and often do
not develop the applications they provide. Web applica-
tion providers, such as Yahoo!, eBay and Amazon.com,
typically do not enter into contracts with customers.
They develop their own applications and typically do not
charge customers directly for the use of these applications.
Drivers, Enablers and Inhibitors
of the ASP Model
Market Drivers
The development of the ASP model has been driven by
key trends in the marketplace that ASPs are well posi-
tioned to address, including:
Competitive cost pressures
Globalization and mobilization of the workforce
Time-to-market and scalability challenges
Scarcity of IT skills
Focus on core competencies
First, ASPs help customers address increasing cost
pressures by providing up-front cost savings through
pay-as-you-go pricing models (typically on a monthly
rental fee basis), instead of charging large up-front
license fees combined with an expensive and long
implementation process. In addition, under a rental
model, customers reduce their total application lifecycle
costs by avoiding costly upgrades.
Second, ASPs enable their customers to deliver
applications to their increasingly global and mobilized
workforces by providing anytime, anywhere access
to applications remotely over a network. By using an
ASP, customers can avoid the cost of building their
own intranets and extranets.
Third, ASPs enable customers to accelerate their time-to-
market by deploying applications quickly with minimal
installation and integration efforts. This is accomplished
through the use of standardized application templates. In
addition, ASPs make it easy for customers to scale their
services rapidly. New users or applications can be added
to existing services with minimal cost or delay.
Fourth, ASPs help their customers free up expensive
and scarce IT resources by taking over the application
management and delivery functions from the internal
organization.
Finally, ASPs help their customers to focus on their core
competencies by allowing them to outsource application
services that are non-strategic in nature.
Technology Enablers
The viability of the ASP model has been enabled in part
by technology developments, including the ubiquity of
the Internet and network protocols, increases in band-
width, improvements in network performance (latency,
scalability, reliability), the development of network
monitoring tools, and improved network security. These
advances have enabled ASPs to deliver applications to
customers from remote locations with acceptable levels
of performance and security.
2
Growth Inhibitors
Although ASPs have received significant attention in the
technology press and in the stock market, up to this point
adoption of the ASP model by customers has been limited.
This has been due to a variety of inhibitors including:
Limited awareness and understanding of the
ASP model
Discomfort with the embryonic state of the industry
Customer concerns relating to performance and security
Limited application availability
Resistance from internal IT organizations
Today most companies are unaware or unconvinced of the
benefits that ASPs provide.
Additionally, most ASPs are recently founded entities that
are inexperienced in performing the complicated task of
piecing together the extended partnerships required to
deliver their services. Potential customers are reluctant to
outsource their applications to companies that may not be
in business long enough to fulfill their contractual obliga-
tions. Customers are also reluctant to serve as guinea
pigs while these new entities experiment with their busi-
ness models to address challenges in this nascent market.
Most companies are not confident that ASPs can guarantee
the same level of performance and security as in-house
solutions, especially in the context of mission critical appli-
cations. Many companies may be unable to find an ASP
offering the applications they demand in their specific ver-
tical markets or they may have to contract with a variety of
ASPs to get access to all the applications they need.
Finally, many internal IT organizations perceive ASPs as a
threat to their livelihood, are uncomfortable with giving
up control of their applications to outsiders, or are reluc-
tant to switch to ASPs due to significant financial and
resource investments in legacy systems. In addition, some
start-ups are beginning to ask ASPs to provide a means for
the customer to move their applications in house once they
have the resources to manage the applications on their
own. Understandably, ASPs are reluctant to do so.
As discussed below, ASPs must address these concerns in
order for this business model to succeed in the long term.
This being said, ASPs still offer their customers an
attractive value proposition both in terms of providing
cost savings and getting start-ups online quickly.
The ASP Value Chain
In order to provide its services, the ASP must coordinate
a series of activities along the value chain. As shown in
Exhibit 2, we group these activities into four key cate-
gories: solutions provisioning; solutions distribution;
service integration; and customer interface.
Solutions Provisioning covers the set of activities related
to the development of applications (and underlying con-
tent) to be provided by ASPs to their customers and the
development of the middleware that enables the remote
delivery of these applications. Specifically, these activi-
ties include content and application creation, develop-
ment and upgrades, as well as the development of appli-
cation administration and delivery tools.
In the ASP value chain, ISVs such as SAP, Siebel, Oracle
and Microsoft, as well as middleware vendors such as
BEA, IBM, Citrix and Netscape are key players in solu-
tions provisioning.
Solutions Distribution describes the set of activities sur-
rounding the delivery of applications to ASP customers.
Specifically, these activities include providing data center
hosting and co-location services, telecom network and
access services, and providing the enabling infrastructure
for both the data center and network environment.
Key players on the data center services side include
Exodus, Intel, Global Crossing, AT&T, EDS and
Concentric Networks, among others. On the network
services side key players include Sprint, GTEInternet-
working, UUNet, Qwest, Covad and Global Crossing.
Finally, key enabling infrastructure providers include
Sun, HP, EMC, Lucent, Nortel and Cisco.
3
A new generation of carriers, called CyberCarriers, are
combining ownership of data centers with ownership of
the underlying network in search of new revenue opportu-
nities and a means to avoid the commoditization of their
core business. These CyberCarriers are working to opti-
mize the performance of their networks, thereby enabling
the delivery of richer content and application services to
end-users. CyberCarriers are positioning themselves to
become a single source for the infrastructure requirements
of ASPs and other providers of network-hosted services.
Examples of service providers evolving into CyberCarriers
include Qwest, Cable & Wireless and Global Crossing.
Greenfield CyberCarriers include Aduronet, EINSTEINet,
FairPoint Communications and Viatel in Europe and the
United States.
Service Integration activities are focused on integrating
the ASPs services into the customers operations.
Activities include business process analysis, application cus-
tomization and aggregation services, and customer-based
integration. Information technology professional services
organizations and consultancies have taken the lead in pro-
viding these services to ASPs and their customers.
Business process activities are focused on developing the
appropriate processes required to integrate the outsourced
applications and data into a customers existing processes.
Key players here include Andersen Consulting, KPMG,
Deloitte & Touche and Ernst & Young.
Application customization and aggregation involves ensur-
ing that the ASP-provided applications are able to leverage
4
a customers legacy data, systems and processes. Key players
in this field include Predictive, KPMG, Deloitte & Touche
and Ernst & Young.
Customer-based integration involves ensuring the integra-
tion of ASP-provided applications with the customers exist-
ing infrastructure. Key players in this field include EDS,
Unisys, IBM and KPMG.
Customer Interface activities focus on acquiring customers
and managing the customer relationship. Specific activities
include sales and marketing, customer support and training,
and contracting and billing activities. While the billing
activities may be provided by such players as Portal
Software, Solect and Kenan Systems, most customer
interface activities are usually provided by ASPs directly.
ASPs own the customer relationship and are responsible for
delivering on the requirements of the customer contract.
ASP Market Segments
& Key Players
With an understanding of the ASP value chain, it becomes
easier to distinguish the differences among ASPs and their
business models. ASPs can be segmented across two dimen-
sions: value chain focus and customer focus.
Value Chain Focus-Based Segmentation
ASPs can be grouped into three categories, based on where
they play along the ASP value chain:
ISV ASPs
Infrastructure ASPs
Pure play ASPs
ISV ASPs are software vendors that have decided to expand
beyond solutions provisioning to also offer ASP services
directly to their customers. ISVs view ASPs as a potential
new channel and are responding in two ways. Some ISVs,
such as Oracle, have decided against allowing other ASPs to
provide their applications to end-users, while others, such as
PeopleSoft, have taken a dual-channel approach by licens-
ing their applications to other ASPs and providing ASP
services for their applications directly. ISV ASPs realize
they cannot ignore the benefits to customers that the ASP
model provides. These ASPs typically will provide solu-
tions provisioning and customer interface activities, but
will look to partners to provide solutions distribution and
service integration. For example, PeopleSoft partners
include Exodus and Sun for data center services and
infrastructure, and Andersen Consulting and Deloitte &
Touche for service integration.
Infrastructure ASPs have their own data centers and have
decided to provide ASP services directly to customers.
Examples of infrastructure ASPs include FutureLink and
USInternetworking (USI). FutureLink owns some of its
data centers and also contracts with Exodus to provide
data center services. USI owns its own data centers and
provides both service integration and customer interface
services to its customers. Both FutureLink and USI rely
on ISV partners to provide the applications they deliver
to end-users. For example, FutureLink provides Microsoft
applications, while USI provides applications from
PeopleSoft, BroadVision and Ariba, among others. Qwest
Cyber.Solutions is a joint venture between Qwest
Communications, which provides solutions distribution,
and KPMG, which contributes service integration expert-
ise. While some consider Qwest Cyber.Solutions to be an
infrastructure ASP, Qwest Communications owns the data
centers that the joint venture contracts to use.
Pure Play ASPs are typically independent start-up compa-
nies that do not own any applications or infrastructure and
provide only minimal service integration activities for cus-
tomers. Their focus is on the customer interface and they
serve as a general contractor, pulling together all the ele-
ments of the value chain to deliver an end-to-end solution
to customers. An example of a pure play ASP is Corio.
Corio does not develop its own software or own any infra-
structure and it provides only limited service integration
on its own. It focuses on providing a superior interface to
5
the customer and pulling together a leading set of partners
across the value chain including Microsoft, SAP,
PeopleSoft, Siebel, BroadVision and Commerce One for
applications, and Concentric Networks and Exodus for the
data center and network. In addition, Corio recently
announced an alliance with Ernst & Young, which includes
an investment in Corio from Ernst & Young and an agree-
ment for Ernst & Young to provide service integration and
marketing support to Corio.
Customer Focus-Based Segmentation
ASPs also can be categorized based on their target
customer strategy:
Start-up/Small Medium Enterprise ASPs
Enterprise ASPs
Vertical Market ASPs
Start-Up/Small Medium Enterprise ASPs fall into two
groups: those providing desktop outsourcing functions
and those focused on providing smaller companies
with enterprise level applications. ASPs such as Tele-
Computing, FutureLink and NetStore fall into the first
category. These ASPs provide customers with desktop
applications for their employees such as Microsoft
Exchange and Outlook, as well as support for such appli-
cations. The second category includes ASPs such as
Applicast, Interliant and Navisite, which have targeted
small, fast-growing companies that either cannot afford to
buy enterprise applications up front or who are looking to
get to market quickly and do not have the time for the
lengthy installation and integration process that these
applications typically require.
Enterprise ASPs are focused on providing their services to
divisions, subsidiaries and business units of large enter-
prises. As such, these ASPs are very focused on providing
their customers with unrivaled performance and security.
In addition, these ASPs must be able to provide highly
customized solutions for their customers, in order to
ensure the applications they provide will work with cus-
tomers existing systems and processes. In order to provide
the level of service required and robust security that enter-
prise customers require, enterprise ASPs, such as USI,
believe they must own their own data centers.
Vertical ASPs have targeted specific market segments for
their services. These ASPs focus on providing vertical
industries with all the industry-specific applications they
need in one place. For example, AristaSoft is focused on
providing ASP services to emerging high-tech equipment
manufacturers, TheBeast.com provides ASP solutions for
financial services companies and USA.net is an ASP for the
travel industry. Corio has also begun to migrate to a vertical
approach by developing pre-integrated multi-application
templates targeted at vertical industries and providing cus-
tomized front-end interfaces for its customers. Value-added
resellers (VARs) have also started to offer ASP services tar-
geted at specific vertical markets in an effort to leverage
existing customer relationships and application expertise.
Below, Exhibit 3 illustrates where existing ASPs fit into
the value chain and target customer focus segments
described above.
6
ASP Economics
ASP Revenues
ASP revenues typically fall into two main categories: start-
up fees and user fees. Both fees are negotiated up front
and are governed by a contract between the customer
and an ASP that typically will run from three to five
years. Because this is a new market and there is a focus
on customer acquisition, fees vary significantly among
ASPs, even for comparable services.
Start-up fees are charged to customers for the services an
ASP provides along the service integration segment of the
value chainspecifically, the integration, training and
customization activities required to get a customer set up
for ASP services. For companies with little existing infra-
structure or legacy systems that are looking for standard-
ized applications, start-up fees to the ASP can be minimal
or even zero. However, in larger enterprises, where these
services are more complex, start-up fees can exceed
$500,000, with additional fees required as new applica-
tions are provided to the customer.
Usage fees are charged to customers typically on a per
user per month basis for access to applications and the use
of ASP services. Usage fees are influenced by three factors:
the application being hosted, the level of usage, and serv-
ice and support levels. For example, usage fees can range
from $5 to over $1,000 per user per month depending on
the application. Because current billing systems do not
permit ASPs to bill customers based on actual usage, some
ASPs try to approximate by charging lower fees for infre-
quent users, while charging active users much more for
the same application. For example, Corio charges $895 per
user per month for active users and $395 for casual users
of PeopleSoft applications. Finally, some ASPs will charge
a premium for higher uptime guarantees and dedicated
support resources.
ASP Expenses
ASP expenses also can be grouped into the same four cate-
gories of the ASP value chain: solutions provisioning,
solutions distribution, service integration and customer
interface, which includes administrative expenses.
Solutions Provisioning Expenses are the costs of obtaining
rights to applications the ASP plans to deploy, and typi-
cally includes the software license fee an ASP must pay to
an ISV. Clearly, if an ISV is providing ASP services directly
to users, the incremental cost is minimal, other than any
application development expenses related to making the
application ready to be delivered in a hosted environment.
Specifically, ISVs may need to make changes to their
application code to enable delivery of the application to
multiple users remotely and to allow the application to be
partitioned on a data center server.
Solutions Distribution Expenses include the fees associated
with storing applications in a data center and delivering
the applications over the network. Specifically, these
costs include the cost of servers, storage devices and
related software, bandwidth fees and the data center staff
to provide setup, management, monitoring and mainte-
nance of the data center and application environment.
ASPs with infrastructure may be able to reduce these
costs (on a per customer basis) if they can optimize their
infrastructure, but these ASPs also have the additional
up-front capital investment associated with building
their own data centers.
Service Integration Expenses include the professional
service fees associated with implementation, customization
and configuration of the application, and the customers
legacy systems and infrastructure. ASPs with in-house pro-
fessional service expertise or formal partnerships with sys-
tems integrators may be able to buy these services at cost,
thereby creating a cost advantage over the competition.
7
Customer Interface and Administrative Expenses
include customer service and support, training, sales and
marketing, research and development, and general and
administrative expenses faced by all ASPs.
Distribution of ASP Expenses across these four segments
reveals that most of ASP expenses are captured in cus-
tomer interface and administrative expenses. BoozAllen
& Hamilton has modeled the expenses of a pure play ASP,
targeting enterprises in a steady state mode (in operation
for three to five years) to gain a better understanding of
how $1 of ASP spending is distributed. As Exhibit 4 indi-
cates, even in steady state, 43 cents of every dollar of ASP
spending goes to customer interface and administration,
largely due to the high sales and marketing expenses that
ASPs are incurring to build market awareness and sell into
new accounts. Service integration represents 26 cents of
every dollar of ASP spending due to the high costs associ-
ated with information technology professional service
expertise. Solutions distribution expenses are 24 cents,
due to both the network and data center infrastructure
expenses and data center staff expenses. Finally, solutions
provisioning constitutes only 7 cents of a dollar of ASP
spending.
Profitability of ASPs
In our analysis, we found that ASPs are far from profitable
today, with most ASPs providing their services at steep
discounts to expenses. In order to convince customers to
outsource their application services, ASPs target a 30-40%
total cost of ownership savings. This pressure is forcing
ASPs to suffer large losses up front.
Although ASPs face high expenses, their biggest challenge
is in generating customer revenue. Over time, ASPs hope
to grow revenue by increasing the number of users per
customer and adding additional applications onto an exist-
ing customers account. Once an ASP has established serv-
ice to an individual customer, it can add new users or
applications easily, thereby generating additional revenues
with minimal incremental expenses.
A major reason ASPs have had a difficulty in achieving
profitability is due to an underestimation of the demand
for customized services from end-users. Many ASPs
believed that service integration activities could be done
easily with templates built around standardized applica-
tions, but have found that in order to succeed in the mar-
ket they must customize applications to meet individual
customer needs.
We anticipate that ASP expenses will decrease to some
degree over the next few years in light of emerging trends.
Solutions provisioning expenses should decrease over time
as more ISVs develop their applications for the hosted
environment. Network and data center functionality will
improve so that ASPs will get more for each dollar of
solutions distribution expense. However, customer
demands on this improved infrastructure also will require
ASPs to provide more bandwidth-intensive applications.
Improvements in the network infrastructure will enable
the delivery of next generation applications and content to
customers, thereby enabling additional revenue streams. In
8
addition, as network monitoring tools improve, ASPs will
be able to deploy new billing models, whereby users can be
charged on a per bit, rather than per application, basis.
This will enable ASPs to better tie their service revenues to
their incremental costs. Although service integration costs
will decrease as ASPs climb the learning curve, we believe
these costs will remain higher than ASPs have anticipated.
Finally, as customers become more familiar and comfort-
able with the ASP model, customer interface expenses,
specifically sales and marketing costs, also should decline.
In addition, all providers along the ASP value chain may
adopt more flexible pricing models, allowing ASPs to pay
for software license fees and infrastructure as they grow
instead of up front. For example, vendors such as Great
Plains Software and Hewlett-Packard are offering flexible
pricing to ASPs so that ASPs pay for software and infra-
structure only as they add new customers. However, this
trend also poses a potential threat to ASPs: as vendors
become more comfortable with pricing their services on
a monthly, scalable basis, they may decide to offer similar
billing to customers directly, circumventing the need for
the ASP.
Future of the ASP Model
Overcoming Inhibitors
Although the economic picture for ASPs should
improve, it remains unclear if the ASP model, as
currently conceived, will succeed in serving a large
segment of the business community. In order to prosper in
the long run, ASPs must overcome the growth inhibitors
discussed above:
Limited awareness and understanding of the ASPmodel
Discomfort with the embryonic state of the industry
Customer concerns relating to performance
and security
Limited application availability
Resistance from internal IT organizations
While awareness and understanding of the ASP model is
likely to improve and end-users will become more com-
fortable with ASPs as they build a track record, the other
inhibitors will be more difficult to overcome.
First, performance and security challenges remain signifi-
cant, especially for large enterprise customers. Studies have
demonstrated that most enterprises will demand a higher
level of performance and security from ASPs than they do
from their in-house solutions. Network service providers
and equipment vendors are looking to improve quality of
service over the network, thereby enabling ASPs to serve
their customers better. While this may be achievable from
a technological perspective, it remains to be seen whether
ASPs will be able to guarantee this level of service in a
cost-effective manner.
Similarly, many ASPs are finding that their generic appli-
cation offerings are being commoditized due to increased
competition from other ASPs and ISVs becoming their
own ASPs. As discussed above, some ASPs have begun to
focus on particular vertical markets in order to differenti-
ate their offerings. However, the success of this strategy
will depend on whether critical mass is attainable in these
smaller markets.
Finally, internal IT organizations are likely to remain
somewhat hostile to the ASP model so long as it is per-
ceived as a threat to their livelihood. It is possible that IT
organizations in larger enterprises will continue to feel
uncomfortable letting ASPs host their mission-critical
applications. ASPs may be more successful as providers of
non-critical applications for these enterprises. IT organiza-
tions may also require guarantees of significant cost sav-
ings from ASPs before they are willing to write off signifi-
cant resource investments made in their legacy systems.
Evolution of ASP Players
In the near term, as ASPs struggle to make a profit and dif-
ferentiate their offerings, ASP business models are likely to
remain in flux. We expect to see two major trends in the
9
ASP market: consolidation and verticalization.
Consolidation will take place among two segments of the
ASP market, ISV ASPs and ASPs with infrastructure. ISV
ASPs are unlikely to gain a critical mass of customers
because they do not provide customers with one-stop-
shopping for applications from multiple vendors. ASP
aggregators, who offer customers one point of contact to
pull together multiple ISV ASP offerings, are hoping to
address this opportunity. ASPs with infrastructure are well
positioned to succeed in the short term because they
are best positioned to provide both applications and
network expertise, unlike their competitors. However,
these ASPs will have a difficult time developing the
economies of scale needed to support their infrastructure.
Consequently, it is likely that the fragmented ASP indus-
try will witness a significant round of consolidation as
investors pressure ASPs to become profitable and gain
a critical mass of customers.
10
Unless ASPs build vertical expertise, pricing will remain
the main differentiator for their offerings. In addition,
horizontal ASPs remain vulnerable, as other players who
may be better positioned to address application needs
across industries such as network service providers and
systems integrators decide to move into this space.
As a result of these two trends, over time we expect to see
the ASP market dominated by a few larger, horizontal
ASPs targeting enterprises across industries and many
smaller, vertical ASPs focused on serving specific industry
segments.
Exhibit 5 illustrates a likely evolution path for players in
the ASP market. First, as we have seen, CyberCarriers are
emerging from network service providers to provide both
network and data center services. Second, some horizontal
ASPs are beginning to focus on vertical markets and
evolve into vertical ASPs. Finally, we anticipate that these
vertical ASPs, in an effort to increase revenue opportuni-
ties, may evolve into a new entity, a CyberVortal, that
combines the vertical application services of a vertical ASP
with industry-specific non-application services (e.g., infor-
mation, community, marketplace, etc.) of vertical portals,
or vortals.
An example of a potential CyberVortal is Covisint, the
recently announced combination of Fords AutoXchange,
GMs TradXchange and DaimlerChryslers planned auto
industry vortal. Covisint could add ASP services targeted
at the automotive industry to its website, creating a single
destination for the front and back office computing needs
of this industry.
Similarly, by providing supply chain management applica-
tions, ASPs can help to accelerate the standardization of
processes for different vertical industries. For example,
Solectron, a contract manufacturer for the technology
industry, is working with its suppliers and customers to
standardize the exchange of data. These efforts could be
advanced by ASPs through the support of these standards
into back-office applications provided by ASPs.
Conclusion
Regardless of which ASP business models are successful, it
is clear that more enterprises will be moving their applica-
tions and data onto the network and that more users will
need access to this information remotely. Some global
enterprises may find that they have the scale and expertise
to deploy and host applications on their own cost effec-
tively, either by building their own data centers and pri-
vate networks or by hosting their applications in data cen-
ters on service provider networks without using an ASP as
an intermediary.
As a result, ISVs, network service providers, data center
providers and equipment vendors will continue to benefit
from the growth of network-hosted services under any sce-
nario. Specifically, ISVs will use the network as a new
channel to deploy their applications and reduce distribu-
tion expenses. Network service providers and data centers
will benefit from increased traffic on their networks and
growing hosting revenue. Equipment providers will bene-
fit from the build out and upgrade of existing facilities
and networks.
Because ASPs are challenged to provide very high levels
of performance and security to their end-users, they are
the leading edge customers for CyberCarriers and other
providers of next generation networks. Thus, while the
fate of ASPs is still uncertain, it is clear that they are
helping to accelerate the capabilities and growth of the
network-hosted economy.
11
Bibliography
1. Dataquest, Worldwide Application Service Market Growth:
$22.7 Billion by 2003, September 1999.
Barry H. Jaruzelski
Barry Jaruzelski is a Vice President in BoozAllen &
Hamiltons Communications, Media and Technology
Practice (CMT) based in New York. As an undergradu-
ate at the University of Pennsylvania, Mr. Jaruzelski
studied engineering and economics and later received an
MBA from Columbia Business School. His past projects
have included designing the product planning process
for a large computer company and defining the turn-
around program of a workstation and server supplier,
as well as establishing a greenfield division for a
telecom equipment maker. He can be contacted at
212-551-6773 or jaruzelski_barry@bah.com.
Randy M. Lake
Randy Lake is an Associate in BoozAllen & Hamiltons
CMT Practice based in San Francisco. Prior to joining
BoozAllen, Mr. Lake was employed as a corporate attor-
ney with Brobeck, Phleger & Harrison in San Francisco.
Mr. Lake received a BA in political economy from U.C.
Berkeley, where he graduated Phi Beta Kappa. Mr. Lake
also holds a JD from Harvard Law School. He can be
contacted at 415-627-4258 or lake_randy@bah.com.
Frank M. Ribeiro
Frank Ribeiro is a Senior Associate in BoozAllen &
Hamiltons CMT Practice based in New York. His past
projects have focused on the communications and tech-
nology industries, specializing in strategic issues facing
wireless, wireline and Internet service providers and
telecom equipment providers. Prior to joining
BoozAllen, Mr. Ribeiro was employed at a major
telecommunications carrier in a variety of management
positions. Mr. Ribeiro received a BS in Engineering
from NJIT and also holds an MBA from the Stern
School of Business at New York University. He can be
contacted at 212-551-6677 or ribeiro_frank@bah.com.
BoozAllen & Hamilton
Founded in 1914, BoozAllen & Hamilton is a global
management and technology consulting firm serving
clients in 90 offices around the world. With a team
of 9,800 professionals, our goal is to assist our clients
in defining and driving successful strategic transforma-
tions. The Communications, Media & Technology
Group (CMT) is one of the largest practices within the
firms Worldwide Commercial Business.
www.bah.com
12
BoozAllen & Hamiltons Communications, Media and Technology team recently conducted a series of global
interviews with various stakeholders in the ASP value chain: enterprises, ISVs, ASPs, NSPs, data center operators,
and professional service and equipment providers. The results, as well as internal research and analysis, were used
to prepare this report.
Abu Dhabi
Amsterdam
Atlanta
Bangkok
Beirut
Bogot
Boston
Buenos Aires
Caracas
Chicago
Cleveland
Dallas
Dsseldorf
Frankfurt
Hong Kong
Houston
Lima
London
Los Angeles
Madrid
McLean
Melbourne
Mexico City
Milan
Munich
New York
Paris
Philadelphia
Rio de Janeiro
Rome
San Francisco
Santiago
So Paulo
Seoul
Singapore
St. Louis
Stockholm
Sydney
Tokyo
Vienna
Warsaw
Washington, D.C.
Wellington
Zrich
Worldwide Offices
CMT 001 2.5M: 7/00 PRINTED IN USA