DELIVERING BUSINESS CRITICAL INFORMATION SYSTEMS THOUGH APPLICATION SERVICE PROVIDERS: THE NEED FOR A MARKET SEGMENTATION STRATEGY

Abstract

This paper draws from the findings of a large-scale empirical research program on the global application service provider (ASP) industry funded by research grants from the European Commission (EC) and the Engineering and Physical Sciences Research Council (EPSRC). A conceptual framework consisting of a taxonomy of ASPs is used to demonstrate the different market segmentation strategies adopted by ASPs for competing in this fledgling and turbulent industry. Drawing from empirical research carried out in the US and Europe, the paper evaluates ASP strategies for deploying, hosting, managing and enabling software applications on behalf of their customers. The ASP business model is advocated as an attractive value proposition for SMEs, dot.com companies and other start-up firms seeking hyper-growth. Yet the evidence so far suggests a slow start to the ASP market as few reference sites demonstrating best practice exist. ASPs will therefore need to re-evaluate their strategies if they are to convince potential customers of the benefits of application outsourcing. Against this background, the paper evaluates the benefits and risks of the ASP model.

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