Weekly Review: ASPs Have Been Where Web Services Are
Feb. 12, 2002: In this week's commentary: Like ASPs now, Web services will go through an inevitable bust and will emerge under a new name as a vibrant growth area. But the next few years won't be easy
Back in 1999, when ASP hype was just coming to the boil, there were a host of analyst predictions for how huge the market was going to become. Each came up with their own figure, but they all boiled down to pretty much the same message. I used to sum it up as "twenty-something-billion dollars by the year two-thousand-and-something."
Read and React
"SAP, Siebel, WebMethods and others promote Web services as a way of tackling the costs of connecting their software to other applications, but it does nothing to cure the inflexibility of the underlying architecture. Web services demand an entirely new, distributed application architecture. Using it to plaster over structural problems in older software just defers the day of reckoning"
I felt a strong sense of deja-vu last week when IDC released its latest predictions for the Web services market: Web Services Market to Reach $21 Billion by 2007. There was something oddly familiar about those numbers. I had the unnerving feeling that I'd been here before.
Which of course I have. Caught up in all the excitement of late 1999, I used to argue that the analyst's figures were off by a factor of two or three, just like ZapThink analyst Ron Schmelzer last week, quoted in a follow-up article on the Web services market: "The $21 billion number is a figure that might be off by as much as two to three times in size." (See Web Services Show Promise, but How Much?).
In the end, though, those early overestimates have turned out to be not so far off the mark, now that we've finally reached the 2003-2004 timeframe. IBM alone has pledged to spend $10 billion on "on-demand computing", and what is that if not ASP by another name? Meanwhile, IDC's Amy Mizoras was quoted in another story last week saying that, "The market for ASP services continues to be one of the fastest-growing segments of the IT services landscape ... [it] grew 49 percent from 2001-2002." (see USi Integrates Payroll Service With Enterprise Apps).
Lessons Learned from the ASP Market
But being right in the long run is still no consolation to those who've wagered and lost their fortunes in the meantime. So with the prior hindsight of having watched ASPs going from boom to bust in 2000 and 2001, here's a rundown of the similarities between early ASP hype and the current buzz around Web services. These are the main pitfalls that caught people last time. Take care to avoid them this time around:
It's not a market, it's a mechanism. Exhibitors at ASP conferences used to decry the absence of users whom they could sell to, and there was much agonizing about how drum up user enthusiasm for the ASP model. This was a complete red herring. Both the ASP model and Web services are means to an end. Customers will only ever be interested in going to conferences about the underlying mechanisms once they have already become committed users. The only way to get them committed is to offer them solutions tailored to the needs of their business that work better than solutions based on other technologies. Once they've bought the solution, then you can tell them about the underlying mechanisms that make it all possible. But not a word about it before. There is no natural market for the technology alone.
It's not a quick fix for problem software. The earliest proponents of the ASP model were top-tier enterprise software vendors such as Peoplesoft, Oracle and SAP. They saw it as a means of reducing the enormous implementation and maintenance costs of their software, in order to sell it to smaller companies. Citrix, the creator of Windows terminal software, promoted it as a way of cutting the high management costs of Windows PCs. But the ASP model did nothing to solve these problems, which were deeply rooted in the original products. Today, it's the same story with Web services. SAP, Siebel, WebMethods and many others promote Web services as a way of tackling the huge costs of connecting their software to other applications, but it does nothing to cure the inflexibility of the underlying architecture. Web services, just like the ASP model, demand an entirely new, distributed application architecture. Using it to plaster over structural problems in older software may seem to work for a while, but it just defers the day of reckoning when you have to rip everything out and start over.
Don't trust anything you hear from the big vendors. It's only natural to look to the industry's established names for leadership; but it's by far the biggest mistake you can make. Microsoft, SAP, Citrix, Cisco and others promised to steer a course for ASPs, but in the end all they did was lead them up the garden path. Most established vendors have even less of a handle on leading-edge innovation than those who look to them for guidance, and the rest keep quiet for fear of destabilizing the status quo. IBM, Microsoft, Sun and the others like to give the impression they're fully in charge of the development of Web services, but in reality they're fighting a desperate battle to defend their existing market positions in the face of hugely unpredictable and disruptive forces for change.
SMB early adopters are not a mass market. The only businesses that can really afford to invest in untried new technologies are large enterprises. You'll always find a few adventurous chancers among the mass of SMBs (small and medium-size businesses). They're the ones who'll try out a new solution in the hope of gaining some competitive edge, but they're firmly in the minority. Most SMBs wait until they see new technologies endorsed by the big names in their sector. Anyone who tells you different has never worked for an SMB.
Nobody's going to get rich quick. Those "twenty-something-billion by two-thousand-and-something" predictions seem to promise an untapped market that's just waiting to be seized by a handful of prime movers. But somehow it's never as easy as that. First of all you have turn the technology into a saleable business solution. You have to do it from scratch, and you can't lean on any of the established vendors for help. There's no easy volume market, so you have to convert customers one at a time. And because you're selling component services instead of complete packages, your revenues are smaller per unit, and have to stretch over the full product lifecycle. All of this means that you'll need many more customers than your traditional competitors before you get anywhere near breaking even, which will severely test the resolve of your financial backers.
A Long and Winding Road
It is possible to triumph, in spite of all these challenges. Like ASP now, Web services will have come through the inevitable bust in five years' time, and will be emerging under a new name as a vibrant growth area. But let no one tell you the intervening years are going to be easy, and don't believe anyone who says they have all the answers. Even the ultimate survivors are going find it a long hard slog.
Do you have a comment or question about this article or the ASP industry in general? Speak out in the ASP Discussion Forum.
Phil Wainewright founded ASPnews.com in 1998 and is the publisher of Loosely Coupled. He can be contacted at
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