2001 ‘Delivering business critical information systems as a service: a taxonomy of application service providers

This paper considers the emerging application service provider (ASP) industry which represents the third wave in global IT outsourcing (Currie 2000a). This is fundamentally different from first wave, traditional service bureau outsourcing, and second wave, enterprise system outsourcing. ASPs offer a new business model in the form of application outsourcing (AO), enabling large and midsize customers to rent business critical software applications which run over the Internet or a local area network. The utility model offered by ASPs is an attractive value proposition for companies since it may lower their total cost of ownership (TCO) of IT and enable them to scale their business according to their own timescales. The market for branded application outsourcing services is expected to grow to $21 billion by 2001. This paper draws from the findings of a large-scale empirical study on the ASP industry in the US and Europe. It develops an analytical framework in the form of a taxonomy of ASPs, and evaluates their strategies for deploying, hosting, managing and pricing applications on behalf of their customers. Using case study research into pure play, enabler, enterprise, vertical, and horizontal ASPs, the paper seeks to evaluate the opportunities and pitfalls of the ASP business model. It argues that simple choices concerning outsourcing or insourcing are irrelevant in the ASP model, since many SMEs, dot.coms and start-up firms, alike, all of which are seeking hyper-growth, are precluded from sourcing IT capabilities and skills in short time scales- unless they outsource