The application service provider (ASP) model has gained ground in Canada and is beginning to show a measurable return on investment for customers, according to new research by IDC Canada.

But while it’s a good time to be offering ASP solutions, providers can not live on ASP revenue alone.

“ROI (return on investment) is probably one of the biggest things to hit the landscape,” said Lize Dellazizzo, director of ASP research at IDC Canada, during a recent Web cast. “We actually have evidence that supports the fact that the ROI behind the ASP value proposition exists, that has been existing for the last while.”

Dellazizzo said the value proposition of ASPs is delivering business services wrapped around software, but ASPs can be broken into different categories, both from an application perspective and services perspective, including enterprise, collaborative and personal ASP services.

IDC’s research also focuses on buyer intentions, said Dellazizzo. “That’s incredibly important because you can’t play in this market place if you don’t understand what buyers are looking for when they’re choosing ASP solutions.”

The ASP ecosystem in Canada has few dot-com companies, said Dellazizzo. “There never really has been, and there are very few companies that we would consider ASP pureplays.” Instead, it’s the larger firms that are playing aggressively in the Canadian ASP market. “Most of them come from a very strong heritage in other areas.”

That heritage can lie in a number of different areas including systems integrator, independent software vendor, telco or a company that provides hardware and infrastructure. Most of the companies deploying ASP solutions are fall into one of those groups, but aren’t necessarily doing it alone, said Dellazizzo. “Partnerships are an incredibly critical part of deploying ASP solutions in Canada. The ASP model is very much predicated on partnerships.”

Based on more 30 hours of interviews, IDC has gathered criteria on what ASPs are looking for in potential partnerships. “Companies look for very strong brand identity.”

Smaller ASPs are looking for partners with credibility they can leverage, said Dellazizzo.

Companies looking to deploying ASP solutions should also have other revenue streams, said Dellazizzo. “You can not rely on your ASP revenue streams for a good period of time. It will take you at least one year to build out sufficient customer traction to be somewhat profitable,” she said. “Although this is a very good time to be deploying because the marketplace is very active right now in Canada and will be for the next few years. You need to be a company that brings to the table other revenue streams.”

IDC Canada’s ASP research program also includes access to information about the ASP market world wide, said Dellazizzo.

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