Taking a flexible approach to ASPs

• Authors: Farheen Altaf;David Schuff
• Venue: Communications of the ACM
• Year: 2010

Introduction In 2001, subscription-based application service providers (ASPs) represented the new paradigm for application deployment. It was anticipated that ASP spending would reach $7.8 billion by 2004, and a 2001 survey conducted by PMP Research revealed that 23% of respondents said they would likely use an ASP in the future. However, this turned out not to be the case. By 2004, spending on ASPs had increased only to $4.2 billion. Over the past few years, there has been a revival of the ASP model through the notion of cloud computing and "software as a service." The market for cloud-based services was $16 billion in 2008, and projections estimate the market for spending in this area will reach $42 billion by 2012. However, this still only would represent 9% of overall IT spending. These services have traditionally targeted larger companies instead of small or medium-sized businesses (or SMEs). Companies like Oracle, Siebel, and Ariba claim that nearly 60% of their business comes from companies that have annual revenues exceeding $1 billion. However, the ASP model provides the same or greater benefits to SMEs, including lower costs, greater choice, simpler installation (and no related fees), and the ability to access applications from any internet-connected computer. ASP subscribers also often receive "24 by 7" technical support. This access to IT expertise (without maintaining an in-house IT staff) results in further savings for businesses. Despite the benefits, small businesses have not readily adopted ASPs. The reasons for this lack of adoption include the reluctance of SMEs to replace their existing systems with untried ASPs and the inappropriateness of the "one-size-fits-all" approach that doesn't take in to consideration specific industry or firm requirements. This makes the SME a significant untapped market for companies operating in this space. The purpose of this article is to more fully understand the SME market for ASPs through an analysis of the factors that are most important to likely adopters. While previous work has broadly investigated adoption by SMEs and the general adoption of ASPs, this study combines both perspectives and proposes the new construct of "flexibility" as influential in the adoption decision. We surveyed 101 SMEs that had not yet adopted ASPs and asked them to rate the importance of several factors that would affect their decision. Correlating likelihood of adoption with the importance of those factors yields several important insights into how ASP vendors should position their product offerings.