Application Service Provider (ASP)

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An application service provider (ASP) is a company that delivers and manages software applications and computer services from a remote data center to multiple users. Companies typically access these applications and services over the Internet, through a virtual private network (VPN), or through dedicated lease lines. A wide range of both applications and communications and infrastructure capabilities are available from ASPs. Among the most commonly used are enterprise applications, including enterprise resource planning (ERP), customer relationship management (CRM), supply management, human resources, and financial management. Software companies such as Microsoft Corp. and Corel Corp. are developing ASP versions of their productivity applications. When it comes to information technology (IT) and network infrastructure, ASPs can deliver network services, complex mission-critical hosting, software and hardware provisioning, infrastructure integration and support services, business continuity services, network management and administration services, and managed VPNs. ASPs also deliver network-based access to processing power and remote data storage facilities.

ASPs have evolved from simply hosting Web services to building and managing e-commerce and platforms. They handle e-commerce issues such as security, registration, and payments, and also provide Internet-based technologies. ASPs can provide communications platforms for messaging, voicemail, IP fax, and hosted collaboration platforms, as well as portals that offer such services as free Web e-mail, contact management, and calendaring.

By hosting these services for other businesses, ASPs enable smaller businesses to benefit from high-priced software packages and systems without having to purchase them. Larger companies tend to use ASPs for outsourcing, while smaller businesses with low budgets use them to gain access to high-end enterprise computing that would be too expensive to purchase. Whatever the size of the client company, using ASPs allows businesses to focus their resources on their core competencies rather than on their information systems (IS) and information technology.

ASPs offer several benefits to both small and large companies. These include a quick launch for new e-commerce, supply chain, and CRM applications. Client companies have to spend less on buying, maintaining, and upgrading software and hardware to run basic applications. They also are free from the need to devote personnel and other resources to keeping up with rapid technological change. ASPs not only provide seamless and inexpensive upgrades, they apply their experience to the best IT practices in order to achieve high levels of availability, security, backup, disaster recovery, and shadowing. ASPs also allow for easy upscaling and downscaling as business volumes change. Finally, ASPswhich typically operate on one-to-three-year contracts with service level agreements (SLAs)provide predictable costs to client companies. With an ASP, payments are amortized over time so companies don't have to make large capital expenditures on software and hardware.

Of course, there are tradeoffs when using an ASP. Among the factors to consider are the loss of hands-on control, the lack of a software license, and a contractual commitment lasting from one to three years. Successful ASPs must deliver on application reliability and availability. A survey by information technology industry magazine CIO found that guaranteed reliability and availability was the number one factor in evaluating ASPs. The second-most-important factor was faster implementation than could be achieved in-house. Another important factor in deciding whether or not to use an ASP was the ability to avoid IS staffing problems. Being free from having to devote resources to hiring and training IS employees was rated as a significant benefit in deciding whether to outsource applications to an ASP.


According to the Gartner Group, companies spent $2.7 billion on ASPs in 2000. That figure is expected to increase to anywhere from $16 billion to $22.7 billion by 2003. Application hosting has been driven by several converging technologies including the growth of the Internet, which permitted the linking of computers to a mostly IP standards-based server network; access to larger amounts of communications bandwidth, which made it easier to reliably send and retrieve large amounts of complex data; and a widely embraced user interface in the form of Web browsers.

The ASP Industry Consortium was formed in May 1999 by 25 leading technology companies. Founding companies included AT&T Corp., Cisco Systems Inc., Compaq Computer Corp., GTE Corp., IBM Corp., Sun Microsystems Inc., and UUNET Technologies. The consortium has grown to more than 700 companies and includes ASP companies, software and hardware companies, network service providers, ISPs, and others.

According to the ASP Industry Consortium, there were some 300 ASPs in business at the end of 2000, and that number has grown considerably. In addition to calling themselves ASPs, some also were known as managed (or management) service providers (MSPs), network service providers (NSPs), netsourcers, total service providers (TSPs), and software rental companies. A full-service provider (FSP)also known as a total service provideris an ASP that offers a wide range of Web-based information technology services, such as planning and creating a Web presence, software applications, and Web hosting and maintenance. Business service providers (BSPs) are similar to ASPs in that they provide customers with application packages over networks. However, BSPs differ from ASPs in that they tend to tailor software packages to a customer's needs and offer back-office solutions for processes like payroll and bookkeeping. A management service provider (MSP) provides the personnel to manage and administer IT services for other companies, thus saving clients the need to have their own administrative personnel.


ASP Industry Consortium. "Glossary." June 6, 2001. Available from

"ASPs: Setting Off a Sea of Change." CIO. October 1, 2000.

Bolding, Jeb. "ASP Adoption Malaise." NetworkWorldFusion. February 21, 2001. Available from

"Compelling Numbers Point to Accelerating ASP Use." CIO. October 1, 2000.

Cooper, Cathy. "Global ASP Deal Is Sealed." Computer Weekly. May 11, 2000.

Semilof, Margie. "ASP Group Boosts Its Membership." Computer Reseller News. July 5, 1999.

"The Value of Opting for an ASP." CIO. October 1, 2000.

SEE ALSO: Hosting Services; Internet Service Provider (ISP); Management Service Provider (MSP); Scalability; Software

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