Despite economic uncertainties and a turbulent technology industry, vendor initiatives in the hosted, software-as-services model continue to grow.

While application service providers (ASPs) initially led the charge to hosted services, a wide variety of service providers have entered the market to offer customers subscription-based services for everything from applications to infrastructure. Collectively these service providers are known as xSPs.

In the xSP model, the service provider offers customers access to IT infrastructure and business solutions as a service over the Internet. The hosting vendor applies economies of scale and skill to implementation, delivery and management; and customers access and pay to use these solutions in much the same way they would a utility, such as electricity or water.

In obtaining services through a service provider instead of deploying and supporting these in-house, customers can realise a number of benefits. These include converting upfront capital costs into monthly operational expenses, faster implementation windows, lower maintenance requirements for IT staff, and staying current with software and hardware upgrades more easily.

In late 1999 and early 2000, the potentially enormous advantages of the hosted solutions business model stimulated the market to such an extent that a number of new, discrete service providers emerged.

The abundance of xSPs entering the market, each with different value propositions and offerings had the unfortunate effect of confusing customers, while concerns were raised over important factors such as security, reliability and the performance of hosted offerings, rights to data ownership and retrieval, and whether xSPs would have the skills to deliver solutions as promised.

Despite the hype surrounding the xSP model, these and other concerns had a severely detrimental effect on the market and customer adoption of the model has been far slower than anticipated; however, the compelling business benefits that xSPs can offer cannot be ignored and long term success is almost certain.

Common to all xSPs is that they deliver and manage services over a network via a one-to-many business model, and charge customers on a fee-for-service basis. Apart from this common ground, however, xSPs can have significant differences, based on the core services and value they deliver to customers. Following are definitions of the major types of xSPs, some of which are operational in the South African market:



Application service providers (ASPs)

ASP's sell, host, manage and support traditional applications such as financials or human resources for end-user customers on a subscription basis. They usually procure and manage the hardware and software for these solutions, as well as provide different degrees of integration, customisation, implementation, consulting and support services. They may operate their own data centre or contract for data-centre services.



ASP aggregators

This term is applied to xSPs that aggregate, and sometimes integrate, business applications and services from a variety of third-party vendors, including those provisioned by other service providers. They offer customers access to an integrated portfolio of applications through a single interface, and manage many provider relationships for their customers.



Capacity service providers (CSPs)

Also known as application infrastructure providers (AIPs), they own the physical infrastructures that support hosting, and include large telcos, ISPs, NSPs, etc, that own large data centres. They typically provide a range of services, from co-location to managed hosting services, such as systems management, security, storage and back-up. They usually stop short of provisioning business applications directly to end-users.



Internet business service providers (IBSPs)

These entities deliver Web-centric services that customers can quickly and inexpensively rent. Most solutions cannot be customised at the source-code level, but users can easily configure them through self-service interfaces. IBSPs may offer point solutions or a solution package.



Internal corporate service providers (ICSPs)

Dominant characteristics: Internal organisations that act as service providers to a company's internal constituents.



Network service providers (NSPs)

This category includes telcos, ISPs, and data-network operators that provide IP transport services.



Vertical solution providers (VSPs)

VSPs provide services and solutions to specific industry segments or sub-segments. They may provision traditional packaged applications via a hosting model, but are more likely to have developed new Web-centric services for their target markets.



Management service providers (MSPs)

MSPs deliver IT infrastructure-management services to customers over a network, on a subscription basis. Like ASPs, MSPs deliver services via networks; but, unlike ASPs, which deliver business applications to end users, MSPs deliver systems-management services to IT departments and other customers that manage their own technology assets.



A ripening market

As the xSP industry matures, there will be consolidation and an emergence of proven methodologies and approaches, much like any other industry.

The xSP market is still in its infancy, and has not been helped by the technology fallout. Technology buyers have become increasingly sceptical of new technologies and concepts, which have hobbled the uptake of the xSP model, but the benefits of hosted infrastructure and services cannot be ignored, particularly in a climate of increased budgetary pressure, and economic slowdown.

While it is inevitable that some xSPs will fail, and others will consolidate, as companies look for new ways to control expenses and make the best use of their IT budgets, the fundamental value proposition for the applications-hosting model remains intact - smaller upfront investment, faster implementations, reduced demand on IT staff - and should ensure the success of the xSP model.

Computer Associates, 011 236 9111, Danny.illic@ca.com