ASP Survivor Scenario; Gartner Predicts 60 Percent of ASPs to Fail by 2001; By 2004, Only 4 Percent of ASPs Will Survive to Share the $25 Billion Industry

Business Wire, August 9, 2000

Business Editors

STAMFORD, Conn.--(BUSINESS WIRE)--Aug. 9, 2000

Gartner Group, Inc. (NYSE: IT and ITB) today announced its brutal consolidation scenario for the application service provider (ASP) market. The industry shift toward delivering software as a service has created a "gold rush" stampede of vendors entering the ASP market, most of which have no idea of what it will take to survive for the longer term.

Today, there are 480 retail ASPs playing in the emerging $3.6 billion industry, with more entering the market every day. By the end of next year, 60 percent of these ASPs will be gone because of bankruptcy, lack of venture capital, mergers and traditional competition. By 2004, only 20 of those 480 ASPs will remain as enterprise-class, full-service retail ASPs, and less than 100 will offer successful point and product solutions, sharing what will grow into a $25.3 billion industry in 2004.

"Today's dot-com collapses will pale in comparison to the effect that the pending ASP meltdown will have on organizations that use these ASPs," said Audrey Apfel, vice president and research director at Gartner. "When dot-coms collapse, they implode and have little effect on their customers and other industries. The ASP consolidation will have a domino effect, affecting business systems like ERP and accounting systems for companies that have outsourced these functions to ASPs. Then, those failures can quickly spread the damage along supply chains.

"The failure of Pandesic is only the tip of the iceberg," Ms. Apfel added. "We expect many other major ASP brands will fail during the coming months. It's a lot like the television show 'Survivor' -- each month that goes by will see the departure of more ASPs with the remaining ones sharing this prosperous market."

Gartner has developed a six-layer ASP model that provides a tool for helping to understand where the winners and losers will come from.

"Many of today's ASPs make the mistake of trying to do everything, including owning the data center. We believe this is a critical mistake and not a sustainable strategy in most cases. The successful ASPs will focus on no more than two layers of our model," Ms. Apfel said.

The post-ASP-collapse landscape will look nothing like the ASP marketplace today.

"There will be few viable vendors, the vendors will be different, the offerings will be different, and then we fully expect that the term 'ASP' will no longer be used to describe these vendors," said Ms. Apfel.

Gartner will discuss its analysis of the characteristics of winning and losing ASPs as well as strategies for ASP customers at the Gartner Fall Symposium, where an entire presentation track is devoted to the delivery of ASP-related research. Gartner's Symposium/ITxpo 2000 will be held October 16-20 in Lake Buena Vista, Florida. This event is the IT industry's largest and most strategic conference providing business leaders with a look at the future of IT. Some of the speakers at this year's event include Hewlett-Packard's chairman and CEO, Carly Fiorina; Sun Microsystems' chairman and CEO, Scott McNealy; and Microsoft's president and CEO, Steve Ballmer.

To register for Gartner's Symposium/ITxpo 2000, please call 1-800-778-1997 or 1-203-316-6757, or go to www.gartner.com/symposium. Members of media can register by contacting Lisette Kwong at 1-212-320-2330 or lkwong@tsicomm.com.

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