IBM gambles $10bn on the return of the ASP


5 November 2002 IBM CEO Sam Palmisano has announced that the hardware giant will put more than $10 billion (€9.98bn) behind what is effectively a re-launch of the company’s application service provider (ASP) strategy.

The company’s new “e-business on demand” services will provide software as a service to customers of all sizes. IBM says it will provide applications and pre-configured business processes based on several business applications, as a service over the Internet.

To support the strategy, IBM has created a new ‘On-Demand’ organization within the company, opened ‘On-Demand Design Centres’ around the world, roped in IBM Business Consulting Services to help with implementation and launched a major print and broadcast advertising campaign.

The business model for e-business on demand is not that different from that of the ASP, a model for renting out software to customers and delivering it through the Internet. But after the failure of ASPs to attract significant numbers of customers – or reach profitability – in the late nineties, the question is, why does IBM think it will work now?

According to Dev Mukherjee, IBM’s vice president of strategy for e-business on demand, the answer lies in a combination of factors. First, the current economic climate has made outsourcing more attractive to corporate customers. Second is IBM’s use of its new ‘utility’ computing technology, which reduces hardware redundancy by running several applications on one server or mainframe.

“ASPs had the right idea,” said Mukherjee, “but they were mainly start-ups, backed with venture capital funding. They had no base infrastructure to provide applications, and therefore could provide no economies of scale.”

Apart from having much greater financial resources than most ASPs, IBM’s utility computing technology enables the company to fully optimise data centre usage, reducing IBM’s operating costs, said Mukherjee.

But while that ought to mean means lower prices for customers, IBM officials were not able to confirm the expected price range for these services. Similarly, Mukherjee was not able to reveal IBM’s current revenues for ‘on demand’ software or the number of customers that currently use it.

Yet IBM is not the only major vendor planning to provide software as a service. Hewlett-Packard and Sun Microsystems both have developed utility computing technologies and Microsoft has not yet canned its .Net My Services strategy (previously called Hailstorm), which could provide applications as services to end users and corporate organisations.

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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