Oracle's ASP aggression - a long odds bet?

Apps on tap. Software as a service, not a product. The ultimate outsourcing agreement. The ability for small businesses (SMEs) to gain access to the kind of high-end applications normally the preserve of the large enterprise.

These are the promises of the ASP evangelists.

And the message is, however falteringly, starting to be heard. Gartner Group's Dataquest says the ASP market will be worth $25.3bn by the end of 2004. Management consultancy ARC forecasts an overall value of $8bn in 2005. IDC says Western Europe will spend $850m on ASPs in 2004.

Although the figures vary wildly, they all point to one thing - a major shift in the way IT departments buy applications.

So how are the big software vendors trying to get users to buy into the ideal? Their attitude is summed up by the phrase "enthusiastic agnosticism". While all are falling over themselves to show their offerings in the ASP space, they don't seem to be spending much time persuading their customers to move over to the new model.

Last month Oracle changed that by reversing its ASP strategy. After spending a year going directly to its customers through its Business Online ASP offering, it has now decided to use pure play ASPs as partners to get to them.

However, this change of heart is perhaps symptomatic of the fact that Oracle has spotted an opportunity. Analysts talk about the ASP model as a way for big software companies to reach the SME market - a market where Oracle in particular has not been strong in the past. It seems increasingly likely that high-end vendors like Oracle and SAP will benefit most from this move to ASPs.

Confirmation of this comes from an unlikely source. Donna Bullock, UK ASP marketing manager at Microsoft, admitted: "Oracle does have more to gain from this model, because traditionally it is not what SMEs want."

John Holden, research analyst at the Butler Group, said: "The more high-end the software, if it can now be made available to SMEs via ASPs, the more uptake there will be. These high-end vendors have the potential to really benefit from this new channel to market."

This has to be encouraging for the Oracles of the world. Its noises in this area are far more evangelical than any other major vendor's.

"The ASP model is the most cost effective way for many customers to get systems, it is the fastest way to roll out to them, and it is the only option for many companies unable to find the expertise or afford the technology." So says Tim Payne, head of data server marketing for Oracle EMEA.

And - of much more significance than that - he says Oracle intends to sell half of all its software via an ASP model within two to three years.

Neither Microsoft nor Lotus is able to make such a commitment. They both seem content to follow the market, all the time ensuring they are prepared to respond when the market takes off.

Oracle is the only major vendor to be actively advising new business customers there are major savings to be made by taking the ASP route. It is even migrating some of its existing customers to the ASP model, mainly those who are struggling to find the in-house skills needed to run its software.

Richard Wendland, analyst at Durlacher Research, said: "All Oracle's moves in this space suggest they are very serious about ASPs. It is a very aggressive strategy, but may reflect not just the benefits of ASPs, but also the fact that Oracle has always had a poor channel strategy."

So why are the other vendors seemingly less enthusiastic? Both Lotus and Microsoft say they will willingly sell via ASPs but are unwilling to push their customers down any particular route.

Microsoft's Bullock added: "The ASP is part of our long term .Net vision, where everything is deliverable as a service. However, in the shorter term we will not promote one channel over the other."

Microsoft declines to predict how many of its customers will be using ASPs in the future.

It is, however, the only major vendor that would say how many ASP customers it has at the moment - 15 to 20 in the UK alone.

Alan Scott, e-communities marketing manager at Lotus, echoed that sentiment saying: "It's wrong to push customers either way. We are very keen on the model, but more than that we are keen on selling Lotus products to as many people as possible."

All vendors insist ASPs are an opportunity, not a threat.

But Oracle seems keener on the model. This could see it win significant early advantage in the market as it grows, gaining marketshare from database software rival IBM.

However, with the ASP industry still in its infancy, it is impossible to be sure how big the market will be. If the idea of hosting apps over the internet becomes discredited by poor delivery, then the ASP could be a bet Oracle wished it hadn't made.

Its proactive strategy raises the stakes. While Microsoft, amongst others, waits for customer demand before going for the ASP model, its conservatism could earn it the respect of weary users tired of the faddism of the industry.

However, if the forecasts of Gartner Group, ARC et al are anywhere near the mark, then Oracle's enterprising stance will win the day.