By 2005, European application service providers (ASPs) will have a firm grip on the enterprise application landscape. ASPs will be essential for Europe’s transition to eBusiness, and firms will get their first taste of these services through eMarketplace trading. This will serve as a springboard for outsourcing internal apps, according to a recent Report from Forrester Research B.V. (Nasdaq: FORR).

“Development in Europe will differ from the US, where ASP services will grow through outsourced legacy applications and concentration on intracompany processes,” said Charles Homs, senior analyst at Forrester. “In Europe, ASP services will grow through green-field applications such as eCommerce and intercompany transactions conducted through eMarketplaces. The acceptance of ASPs running large, strategic enterprise applications won’t come overnight, but over a period of five years companies will be pulled step by step toward ASPs through their eBusiness initiatives. Between 2000 and 2001, firms will inadvertently start to use ASP services as single business functions offered through eMarketplaces, like catalog management and logistics, will drive acceptance of outsourced applications.”

Of the vendors vying for the market, Forrester believes independent software vendors (ISVs) like Oracle or SAP and telcos, are better positioned to meet clients’ needs through their existing enterprise applications, robust technology infrastructures, and deep relationships with firms across Europe. Integrators like Deloitte Consulting and Arthur Andersen will leverage their system knowledge to break into the space and rely on their industry knowledge around specific verticals as a unique selling point.

“In order to manage complete processes like procurement, sales, and fulfillment across their business partners and to have the speed needed to attract new partners, companies will rely on ASPs to provide them with the most powerful new technologies combined with agile delivery,” Homs added. “And as companies increasingly trade online, they will become adept at fluidly forming and disbanding partnerships — giving rise to a new market structure — eBusiness networks.”

Forrester argues that confidence will build as companies buy non-critical supplies online while competitive pressure mounts to drive down costs as a result of the efficiencies realized by online trading hubs. In response, firms will begin trading direct materials online and move most of the procurement process to an ASP. And with some core processes now operating externally, the role of IT will begin to shift as internal staff manage supply chain management systems.

Once companies have gained confidence in the ability of ASPs to run strategic processes, they will increasingly hand over control of their financial applications to ASPs. Through the multiple eMarketplace connections offered by the ASP and a decrease in manual intervention, these corporations will benefit from lower costs for financial transactions.

“As reliance on ASPs increases, vendor lock-in and loss of control will become real threats and companies must verify the controls their ASP has in place to mitigate risk and warrant a high level of service,” Homs continued. “Also, it is vital to keep contracts flexible and ensure that the right service-level agreement is in place — a three- to five-year ASP contract, for instance, will be far too rigid in an immature market. But beyond 2005, companies will connect to ASPs that can ensure a high customer satisfaction level, keep things simple by using generic applications, and push costly industry-specific applications out to ASPs.”