A couple of years back dotcommers still hyped from the illusion they could extract big internet bucks from the ether, jumped on the next bandwagon convinced the market was ripe for on-line software rental.

There was a rush to host the latest and greatest applications, believing small to medium businesses would eagerly by-pass the hassles of internal IT investment and management to run with the new model. It was thought demand for monthly rental of Microsoft’s Office suite for example might pave the way but cost and uncertainty over returns scared off the customers.

While the model is being embraced with enthusiasm in the US there’s still caution among Kiwi companies - several players have shied away from the ASP TLA (application service provider three letter acronym). Computer Associates for example favours ‘server-based computing’ and pioneering ASP joint venture esolutions was forced to change its marketing to favour services and infrastructure solutions. Unisys is also rolling its offerings back into ‘managed services’, focussing on networks and specific applications.

Other providers including Hitachi Data Systems (HDS), Greenwoods, AppServe, ExoNet, Conduit, GDS and Always There also diversified combining hosting and software rental with development and integration skills.

Rather than small businesses, larger organisations have led the way, often in niche areas such as payroll, human resources and customer relationship management. Generally though New Zealand companies appear reluctant to hand over responsibility for their applications to outsiders. Mike Cranna consulting manager with IDC New Zealand, says its such a revolutionary change that many still want to have their server in a cupboard under the staircase where they perceive its safe and accessible.

To win them over ASPs need to be more creative in marketing their services, getting the products right and demonstrating real savings. While few are making money, when they get it right he suggests, the model can quickly be rolled out to whole industries.

Mr Cranna believes the opportunity is for smaller businesses to begin "punching above their weight" employing sophisticated e-commerce, project management and other vertical applications they could not otherwise afford.

In July this year the Aberdeen Group predicted the global ASP market would grow at a 52 per cent compound annual growth rate through to 2005 with ASP spending increasing from $US3 billion this year to $US16.1 billion over the next four years. The survey focused on seven ASP market categories: e-commerce, ERP (enterprise resource planning), collaboration, communications, human resources, financial and education and training. Forrester Research expects the hosting market will grow to $US11.3 billion by 2003.

As success stories emerge and business cases are proven there’s a corresponding surge in e-marketplaces, e-procurement, supply-chain and customer-relationship management, on-line collaboration and ASPs.

In a sense it’s a return to the days of old when mainframes ruled and applications were delivered to dumb terminals on the desktop. The centralised management of the ASP model is also similar to ye olde data centre approach. While it smacks of a bygone era it also puts a new spin on thin-client computing and places leading edge applications on a level playing field.

Paula Hunter head of the ASP Industry Consortium in a recent visit to Australia says the ASP market is bedding down and there’s a much greater awareness of what it can deliver with Computer Associates (CA), SAP, Microsoft and Quicken all delivering parts of the model. She suggests within two years ASP will be pervasive with a smorgasbord of choice for business making the rent or buy choice much more competitive.

Rather than being seen as something alien the trend is to deliver ASP services through existing channels which helps build confidence in customers who’ve come to rely on a particular team of experts, brand or company reputation.

The lack of specialised in-house expertise will help the move to ASPs who have niche skills, as will the availability of affordable, secure, high-speed communications. There’s also a belief that the on-line model will rapidly become industrial strength and as business confidence grows, evolve into an essential utility infrastructure akin to telecommunications or electricity.

Just as fast internet opens the way for the ‘always on’ surfer so the ASP model opens the way for the always on enterprise. It’s another strategic shift for business, giving IT managers more options in their ongoing challenges of transformation for the next economy and tightening the belt to survive the old one.

The economic downturn could work in favour of the ASP model as more businesses look to cut costs, reduce complexity and minimise management issues. According to a US-based IDC report, companies that use ASP services not only benefit from a return on investment but also on increased peace of mind, clearer focus and a better work environment.

Difficult economic times have forced a return to cold, hard business basics and a renewed focus on value for money and proven productivity gains. Outsourcing in its various forms may well free firms up from trying to be technology innovators to concentrate on core business and competitiveness.