February 2, 2000 Web posted at: 1:27 p.m. EDT (1327 GMT) by Denise Pappalardo and Marc Songini

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(IDG) -- Two of the biggest names in corporate networks - AT&T and IBM - last week pledged their support for the application service provider (ASP) market, a development that could result in new services and more credibility for this relatively untested field.

To date, the ASP market largely has been the domain of lesser-known companies - a fact not lost on potential customers hesitant to give up any control of their vital corporate applications and data. Observers say such potential customers might be easier to convince if the upstart ASPs can point out that their application-hosting infrastructures are actually being provided by the likes of AT&T and IBM.

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AT&T, at ComNet 2000, introduced its Ecosystem for ASPs, a set of network and hosting services for ASPs and independent software vendors. AT&T has teamed with a slew of vendors to create an application-hosting environment as well as content distribution and storage management services that will enable ASPs to meet a wide variety of customer needs.

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IBM, which is among the vendors working with AT&T, separately proclaimed at its IBM Partner World conference in San Diego that it wants to be a supplier to the whole ASP industry. IBM is offering hosting services as well as providing ASPs with a lab where they can build and test applications. IBM also plans to finance some ASPs and offer professional marketing services.

AT&T and IBM's announcements further validate the application-hosting concept, which is still relatively new and unproven, says Tom Jenkins, senior consultant at TeleChoice, a consulting firm in Boston. Sprint, UUNET, Sun, Hewlett-Packard, Microsoft, Oracle and Intel are among the other big names that have embraced the ASP market, which Forrester Research in Cambridge, Mass., predicts will generate more than $11 billion in revenue by 2003.

With a market that big to attack, it's no wonder that AT&T plans to invest $250 million over the next few years to build hosting facilities that ASPs can use to deliver services.

Today AT&T has five such data centers up and running, and the carrier plans to have 26 more in operation by the end of next year. These data centers will host corporate applications and Web servers, with equipment supplied by AT&T partners such as Cisco, EMC, HP, InfoLibria, Inktomi, Novell and Sun.

"Data centers will be the next generation central offices," says Kathleen Earley, president of AT&T's data and Internet services. She expects the data centers to be the birthplaces of a new generation of integrated voice and data applications and services.

Earley also says AT&T is working with its partners, such as Cisco, to create technology that will enable ASPs and their customers to monitor the quality and performance of AT&T's network and services. Stephen Elliot, a senior analyst at Gartner Group, says having an association with AT&T won't hurt ASPs.

"Let's face it, AT&T has one of the strongest brand names in the world," Elliot says.

But AT&T does not plan to become an ASP itself, Earley says. "We are not application experts," she says.

IBM's ASP plan

IBM, meanwhile, is trying to cover all the ASP bases. The company actually acts as an ASP in offering WebSphere Web applications, but IBM officials last week emphasized that the company is more interested in helping other ASPs deliver services than in being an ASP itself. The company hopes to have up to 100 ASPs using its services by year-end.

"The role we're trying to play in the ASP world is principally selling to companies that want to be ASPs," says Steve Mills, general manager of IBM's software solutions group. "We'll sell hardware, software and services expertise to help make businesses successful."

For example, IBM has a program called ASP Prime designed to help software developers get their applications ready for delivery in an ASP format. IBM's Tivoli subsidiary offers the Net Generation Initiative, which provides software management technologies for companies that want to build and deliver ASP services. Lotus, another IBM subsidiary, offers an ASP Performance Solution Pack for ASPs to use to run collaborative sessions with their customers.

Already firmly established in Web hosting, IBM offers additional services through its ASP Hosting Advantage program. IBM is able to host applications for ASPs and their customers at its massive Schaumburg, Ill., data center, and soon plans to open data centers in Raleigh, N.C., and Boulder, Colo., to handle what IBM expects will be greatly increasing demand. IBM currently has 40,000 servers (from IBM and others) available for hosting services. On a contractual basis, IBM offers billing, security, licensing and management services to ASPs.

Analysts say that while IBM's and AT&T's increased involvement in the ASP market is sure to fuel growth, they also expect that some ASPs may view the big vendors less as potential partners and more as eventual threats to their businesses.

But at least for now, some ASPs are willing to give IBM and AT&T a chance. In fact, AT&T last week named a handful of ASPs that are using its Ecosystem services, and claims that it is already working with up to 100 ASPs.

Users surveyed say they like the idea of AT&T and IBM getting into the ASP infrastructure business, but still would not automatically go with an ASP just because its infrastructure is supplied by AT&T or IBM. Despite the fact that these companies have huge installed customer bases and significant network and computing resources, their resources are not 100% reliable, says Sim Wright, coordinator of information technology at BMW Manufacturing in Spartanburg, S.C., which is looking into outsourcing some applications.