A recent International Data Corporation (IDC) bulletin, "ASP and Application Management Services", reveals that while 74% of the market in 2001 was captured by the top 10 vendors, the competitive landscape was showing signs of incipient change. According to the report, application service providers (ASP) are likely to begin to take market share, predicting that spending on ASP will rise by 2006 to equal that currently spent on application management services.
For the moment, however, application management belongs to the established players, with global services giant EDS leading the field. With revenues of $1.975 billion, EDS is ranked around 45% above its closest competitor, Accenture, with $1.086 billion in revenues. The remaining top 10 vendors all fall below the $1 billion revenue mark.
Despite being overhyped, says IDC analyst Jessica Goepfert, "the increasing popularity of packaged applications, the evolution of more configurable packaged software, and the drive to avoid large investments in infrastructure will all work to tip the scales in favour of an ASP solution". This means that the traditional application outsourcing contracts are "starting to take on blended characteristics of both the ASP and AM worlds".
"The specifics of the definitions don`t really matter," argues Ian Bayne, acting MD of the EDS South Africa Solution Centre. "What we`re really talking about here is different billing models along a continuum. At the one end of the scale, ASP offers costs based solely on usage, with the business risk being totally carried by the service provider. AM, on the other hand, offers costs based on infrastructure, with the performance risk borne by the client. The South African market increasingly wants the flexibility to operate between the two as its needs change. EDS`s core competency of running data centres means we can consolidate all the processing and so offer this kind of scalability-at-will, yet also deliver on economies of scale."
To enable it to offer this kind of flexibility and reliability to its customers, EDS has spent $100 million over the past four years on improving project management skills and ensuring that its solution centres are standardised on best practice.
The local outsourcing market is starting to mature, Bayne believes. "Aside from the cost- and resource-benefits, companies are starting to see real value in the stability and predictability this kind of approach brings to IT costs. Boards are increasingly demanding that CIOs run their departments like businesses, and provide accurate and stable forecasts of expenditure - using a services partner like EDS can materially assist CIOs in providing the results a board requires."
Competition in the AM market is likely to heat up as it is coming to be seen as "the gateway to business process outsourcing", and so a way for IT services companies to increase the value they offer to clients.
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