InformationWeek

As these trends converge, buyers and sellers on the Web will find that their rented applications are connected via their marketplace providers--creating unprecedented levels of productivity and interconnectedness. For example, an online exchange for the automotive manufacturing and supply industry might also rent enterprise resource planning applications to the participating companies, thus enabling the trading partners to share data from the common ERP infrastructure for more-seamless transactions.

Application outsourcing and electronic marketplaces might seem at first glance to be unrelated. For most companies, application outsourcing is an IT strategy, whereas electronic marketplaces are a sales strategy. But combined, these models will touch every area of a company, including sales, marketing, IT, and operations. Together, they can:

• Provide one trading community for information and commerce;

• Provide one place from which trading partners can rent the back-end applications to run their businesses;

• Integrate the processes among trading partners that rent the same application software and share data common to many trading partners;

• Share buy-side and sell-side services among many trading partners, dramatically reducing the cost of transactions.

Step One: ASP Success Continues
The first big trend that will lead to free-trade zones--rentable applications--is a natural extension of the outsourcing business model, as many companies try to find ways to shed noncore business functions.

Outsourcing has spread beyond operational or clerical functions; we now see widespread outsourcing in areas such as Web infrastructure, as many businesses (particularly small-to midsize companies with limited IT resources) rely on Internet service providers for Web access, dial-up connections, and site hosting.

The next step is to farm out even more sophisticated applications that may be becoming commodities, such as E-mail, scheduling, accounting, human resources, and payroll. Even E-commerce applications--such as electronic storefronts, shopping carts, promotions, bill presentment, and customer self-service--can be oustsourced.

ISPs came first to the rentable application game with basic Web services and E-mail and are now looking to expand their offerings. In the short term, E-commerce application hosting is the logical application of choice for ISPs. Service providers including Earthlink, Concentric Network, and Yahoo already offer E-commerce storefront services in addition to E-mail and Web access.

ERP software vendors are also getting into rentable applications. Vendors such as Oracle, PeopleSoft, and SAP are letting customers access hosted applications via Web browsers.

Finally, a new breed of ASPs has emerged, running a wide range of customized applications for customers on a sound infrastructure that can handle high volumes.

Companies such as USinternetworking Inc. provide everything: the data center for hosting, the licensed software, and professional services to create custom applications. Companies such as Corio Inc. use more of a best-of-breed approach, providing professional services and licensed third-party software, while running the applications at an outsourced data center such as those provided by Exodus Communications Inc. Some companies, such as Princeton eCom and Derivion, provide highly specialized vertical applications such as electronic billing.