"ASPs aren’t just managing companies’ technology for customers," says Traver Gruen-Kennedy, chairman of the ASP Industry Consortium in Wakefield, Mass. "These customers are looking for innovative solutions, and I think the innovation component is something that the traditional companies haven’t fully understood yet."

Gruen-Kennedy says that this year marks the moment the ASP market moved from hype to reality. Many ASPs didn’t get the funding they needed until late 1999 to build sufficient support and sales infrastructures, but "this year they are starting to make gains on wins and deployment," says Gruen-Kennedy. "In the fourth quarter [of 2000] we’re going to see a real end user commu-nity emerge and get past all the experi-mental pilots."

Roadkill Recipes

The rented application market is here to stay. Every day, networks and the Internet become cheaper and more reliable vehicles for delivering access to applications. The staying power of the first generation of startup ASPs, however, is in doubt.

"The Goliaths like IBM and PWC are huge wild cards in this market," says Boulanger. "How will a Corio hold up against an IBM? Good question. And that’s why I think some of the ASPs will become roadkill."

As many ASP pioneers are discovering, there is nothing inherently magical in the ASP concept that will free them from the need to tailor their rented applications to the individual needs of customers—especially large customers that want the ASP applications to hook into legacy databases and other software applications. In big companies, CIO’s will expect their ASPs to also be adept systems integrators, which will hit the playing field towards traditional integrators, like the Big Five consulting companies that can adapt themselves to the ASP model.

ASPs that survive will rely not on the rental delivery mechanism itself but on the quality of the applications and the individualized service that customers receive. ASPs that can offer unique applications have a shot, as do those that can deliver standard applications with better speed, more industry specificity and more flexibility than traditional outsourcers or the Big Five consulting companies.

But that’s a tall order, and time is already running out on the startups. If the demise of Pandesic is any indication of things to come—and it is—next year will be a bloody one for the ASP industry.