TECH TALK: The Coming Age of ASPs: Rationale

Application Service Providers (ASPs) offer applications over the Internet using their own servers to customers, who pay a regular fee for the use. For companies, there is no need to own either the application or the underlying infrastructure. For service providers, it helps them aggregate a large number of customers providing economies of scale. Using the Internet as the distribution medium, ASPs can reach out to customer globally.

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There are many other ASP-like models that most of us use every day. For example:

  • Shipping companies – Instead of maintaining your own distribution network for packages, you pay a low incremental fee to ship a package with the post office, Fedex or UPS. BMW and McDonalds are examples of companies that do so much shipping that they actually own and operate their own truck fleets — but this are a rarity.
  • Telephone companies – It would be extremely difficult for a company to justify the cost of owning and operating its own nationwide fiber optic network, so we all pay an extremely low incremental cost for each minute of long distance time we use.
  • Power companies – It would be possible for each homeowner and business to generate power, but not for 10 cents per kilowatt-hour. Therefore, it makes sense to purchase power from a power company that distributes the high capital cost of a power plant across all of its customers. Some companies — especially companies that deal in forestry products — can actually generate their own power affordably because they have a source of free fuel or waste heat from some other process within the company.

    There are cases where we do not go the ASP route. For example, a huge number of Americans own and operate their own automobiles instead of using the ASP called “public transportation.” Most large businesses can justify the costs of large copying machines, while smaller companies rely on the ASP called Kinkos.

    The point of all this is simple — ASPs are all around us in many different forms. We choose whether or not to use ASPs based on economic factors that are driven largely by our frequency of use and the cost of entry and maintenance.

  • A formal definition comes from

    An ASP is a third party entity that deploys, hosts and manages access to a packaged application and delivers software-based services and solutions to customers across a wide area network from a central data center. Applications are delivered over networks on a subscription or rental basis. In essence, ASPs are a way for companies to outsource some or almost all aspects of their information technology needs. breaks the industry into five subcategories:

  • Enterprise ASPs deliver high-end business applications.
  • Local/Regional ASPs supply wide variety of application services for smaller businesses in a local area.
  • Specialist ASPs provide applications for a specific need, such as Web site services or human resources.
  • Vertical Market ASPs provide support to a specific industry such as healthcare
  • Volume Business ASPs supply general small/medium-sized businesses with prepackaged application services in volume. ASPs also may be commercial ventures that cater to customers, or not-for-profit or government organizations, providing service and support to end users.

  • Tomorrow: Business Model

    Published by

    Rajesh Jain

    An Entrepreneur based in Mumbai, India.