Small Business Market Holds Promise for ASPs

Small companies will spend more than $7 billion on application services by 2004, according to a report by Cahners In-Stat Group, and the majority of the spending will likely be part of broadband connectivity.

The report “Small Company Problems, Future ASP Solutions: Demand for Application Services in the Small and SOHO Business Market” found that the market has never been better for the application service provider (ASP) industry, particularly for ASPS targeting small companies. Customers’ increased understanding of technology, pressures to implement eBusiness strategies, and growing confidence in the Internet has set the stage for what In-Stat expects to be a booming market.

While the small-company markets offer ASPs an unparalleled opportunity, cost-effectively reaching and profitably serving these diverse segments will be a daunting challenge, In-Stat found. However, coupled with a major telco, an ASP could better capitalize on the burgeoning small company opportunity.

“The term ‘ASP’ is unfamiliar to small companies today. This puts application service providers at a huge disadvantage when they try to reach these potential customers,” said Kneko Burney, Director of In-Stat’s Markets & Computing. “As a result, small company ASPs will need to partner with well-known brands to reach small customers. Carriers have decades of experience managing millions of small markets. More importantly, carriers need to offer more value to their smaller customers to retain them. Application services are a logical addition to connectivity services.”

Other findings of the report include:

• Though the market is expected to be massive by 2004, it is currently tiny, with small companies spending less than $10 million this year on application services
• By 2004, In-Stat estimates more than 3 million small companies will use application services, likely subscribing to them through a carrier or broadband connectivity provider
• In-Stat believes carriers will emerge to be the most influential channel for ASPs targeting small companies, as these vendors will focus on re-positioning themselves as “business service providers,” endeavoring to surround their customers with business solutions in addition to high-speed connectivity.