The new year "marks the next generation of ASPs," says Greg Runyan, a research analyst with the Yankee Group. "It's not necessarily all new, but it'll be packaged in a different way."

The biggest challenge for ASPs will come in the first and second quarters, when they roll out the first upgrades to their software. Analysts warn that if problems arise, the entire ASP model may be at risk. ASP offerings typically are plain vanilla packages--meaning that if the upgrades fail, customers' confidence will be shaken and ASPs will have a tough time convincing them they can handle complex projects.

Corio Inc. and Breakaway Solutions Inc. are working to enhance their offerings. Corio will release more customized applications for its Express product line. Using newly developed, proprietary Web tools, Corio says it can deliver hosted enterprise applications adapted to fit a customer's business model. The tools have reduced the implementation process from about four months to 10 days, the company says.

Breakaway Solutions is moving forward with plans to offer strategy and systems integration services to customers. "The notion of a pure-play ASP will have less value over the next six months," says Dev Ittycheria, VP and general manager for Breakaway's ASP business unit. "In order to remain a viable player, we need to offer a deep systems integration capability along with the ability to customize software at an affordable price."