Market entry strategies of application service providers: identifying strategic differentiation

In the last few years there has been much interest in the delivery of software-as-a-service. The concept of the remote delivery of software by application service providers (ASPs) has captured the imagination of many academics, practitioners and technology analysts. Yet analyst predictions and expectations with respect to the growth of this new e-business model have not been realised. Although many independent software vendors (ISVs) and other firms such as Telcos' have embraced the ASP business model, few have managed to deploy this business model profitably. Many firms that entered the market in the dot.com wave have struggled to stay in business due to the highly dynamic and turbulent nature of the ASP market. This paper analyses how ASPs are developing their market entry strategies with a view to creating strategic differentiation. It first gives an overview of the outsourcing and ASP literature and then examines the strategies developed by two ASP market entrants: a global telecommunications firm and a European ASP startup. Whilst these firms occupy different segments of the technology sector, the research findings show that they both fail to differentiate their products and services resulting in a failure to successfully develop an ASP business. The paper concludes by suggesting that ASP market entrants need to become more adept at developing strategic partnerships with firms in the technology sector if they are to offer the end-user an outsourced business solution, which can compete on price, quality and service.