Gartner Forecasts Growth, Consolidation in ASP Market

Dataquest, a unit of Gartner Group, forecasts spectacular growth for the ASP industry, predicting it will increase from $1 billion in 1999 to more than $25.3 billion by 2004.

Nevertheless, parent company Gartner Group predicts a "brutal consolidation scenario" for the ASP market, leading to the disappearance of 60 percent of today's retail ASPs because of bankruptcy, lack of venture capital, mergers, and traditional competition.

Dataquest reports that the worldwide ASP market will become much more global than it is now. North America accounted for 65 percent of worldwide ASP revenue in 1999. The research firm forecasts that by 2004, North America will represent 45 percent of global ASP revenue, while Europe, which accounted for only 20 percent in 1999, will provide 32 percent in 2004.

"In the pre-Internet world, it was common for the European and Asian markets to lag behind the United States," Ben Pring, principal analyst for Dataquest's Application Services Worldwide program, said in a statement. "However, by 2004, these markets will be as large and as mature in Europe and Asia/Pacific as in the United States. Another drive in these other regions is that European and Asian markets will be more oriented toward mobile ASP applications than the United States."

For ASPs, that's the good news. More worrisome is the Gartner Group study predicting consolidation in the ASP market.

"Today's dot-com collapses will pale in comparison to the effect that the pending ASP meltdown will have on organizations that use these ASPs," Audrey Apfel, Gartner vice president and research director, said in a statement. "When dot coms collapse, they implode and have little effect on their customers and other industries. The ASP consolidation will have a domino effect, affecting business systems like ERP and accounting systems for companies that have outsourced these functions to ASPs. Then those failures can quickly spread the damage along the supply chain."

Gartner says that many of today's ASPs "make the mistake of trying to do everything, including owning the data center." To be successful in the future, ASPs should narrow their focus, Gartner concludes.

"[After the consolidation,] there will be few viable vendors, the vendors will be different, the offerings will be different, and then we fully expect that the term 'ASP' will no longer be used to describe these vendors," Apfel said.