Application service provider

An application service provider (ASP) is a business that provides computer-based services to customers over a network. Software offered using an ASP model is also sometimes called On-demand software. The most limited sense of this business is that of providing access to a particular application program (such as medical billing) using a standard protocol such as HTTP.

The need for ASPs has evolved from the increasing costs of specialized software that have far exceeded the price range of small to medium sized businesses. As well, the growing complexities of software have lead to huge costs in distributing the software to end-users. Through ASPs, the complexities and costs of such software can be cut down. In addition, the issues of upgrading have been eliminated from the end-firm by placing the onus on the ASP to maintain up-to-date service.

The importance of this marketplace is reflected by its size. As of early 2003, estimates of the United States market range from 1.5 to 4 billion dollars. Clients for ASP services include businesses, government organizations, non-profits, and membership organizations.

Provider types

There are several forms of ASP business. These are:

A specialist or functional ASP delivers a single application, such as credit card payment processing or timesheet services;
A vertical market ASP delivers a solution package for a specific customer type, such as a dental practice;
An enterprise ASP delivers broad spectrum solutions;
A local ASP delivers small business services within a limited area.
Volume ASP

Some analysts identify a volume ASP as a fifth type. This is basically a specialist ASP that offers a low cost packaged solution via their own Web site. PayPal was an instance of this type, and their volume was one way to lower the unit cost of each transaction.

In addition to these types of firm, some large multi-line companies (such as IBM), use ASP concepts as a particular business model that supports some specific customers.

The ASP model

The application software resides on the vendor's system and is accessed by users through a web browser using HTML or by special purpose client software provided by the vendor. Custom client software can also interface to these systems through XML APIs. These APIs can also be used where integration with in-house systems is required.

The Most Common features associated with ASPs include:

ASP Fully owns and operates the software application(s)
ASP Owns, operates and maintains the servers that support the software
ASP Makes information available to customers via the internet or a "thin client"
ASP bills on a "per-use" basis or on an monthly/annual fee

There are a number of advantages to this approach, including:

Software integration issues are eliminated from the client site.
Software costs for the application are spread over a number of clients.
Vendors can build more application experience than the in-house staff.
Keep key software systems up to date, available, and managed for performance by experts.
Improve the reliability, availability, scalability and security of internal IT systems.
Access product and technology experts dedicated to available products.
Reduce internal IT costs to a predictable monthly fee.
Redeploy IT staff and tools to focus on strategic technology projects that impact the enterprise's bottom line.

There are some inherent disadvantages, including:

The client must generally accept the application as provided since ASPs can only afford a customized solution for the largest clients.
The client may rely on the provider to provide a critical business function, thus limiting their ability to handle that function to that of the provider.
Continuing consolidation of ASP providers may cause changes in the type or level of service available.
Integration with the client's other systems may be problematic.

Evaluating an Application Service Provider Security Moving to an ASP infastructure can come at a high cost, as such a firm must assess the level of risk associated with the ASP itself. Failure to properly account for such risk can lead to:

Loss of control of corporate data
Loss of control of corporate image
Insufficient ASP security to counter risks
Exposure of corporate data to other ASP customers
Compromise of corporate data

Some other risks include failure to account for the financial future of the ASP in general, i.e. how stable a company are they and do they have the resources to continue business into the forseeable future. It is for these reasons that Cisco Systems have developed a comphrensive evaluation guideline. This guideline includes evaluating the scope of the ASPs service, the security of the program and the ASP's maturity with regard to security awareness. Finally the guidelines indicate the importance of performing audits on the ASP with respect to:

Port/Network service
Application vulnerability
ASP Personel

As well, making physical visits to the ASP to assess the formality of the organization will provide invaluable insight into the awareness of the firm.

For more information of Cisco Systems' evaluation guidline click here.

Examples of ASP Applications

In early 2005, a wide range of applications were made available to the public using the ASP Model. There are 'free' and simple applications such as Yahoo-Calendar and business solutions such as Salesforce.com and NetSuite.

On-demand providers

History

In terms of their common goal of enabling customers to outsource specific computer applications so they can focus on their core competencies, ASPs may be regarded as the indirect descendants of the computer bureaus of the 1960s and 1970s. In turn, those bureaus were trying to fulfill the vision of computing as a utility, which was first proposed by John McCarthy in a speech at MIT in 1961.

External links

How ASPs Work

Business models | Services management and marketing