Wikipedia has more on the ASP model:
The application software typically resides on the vendor’s system. XML and HTML processes on the client’s computers interact with this software.
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.
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.
HowStuffWorks has more:
The ASP model has evolved because it offers some significant advantages over traditional approaches. Here are some of the most important advantages:
Especially for small businesses and startups, the biggest advantage is low cost of entry and, in most cases, an extremely short setup time.
The pay-as-you-go model is often significantly less expensive for all but the most frequent users of the service.
The ASP model, as with any outsourcing arrangement, eliminates head count. IT headcount tends to be very expensive and very specialized (like pilots in the airline example), so this is frequently advantageous.
The ASP model also eliminates specialized IT infrastructure for the application as well as supporting applications. For example, if the application you want to use requires an Oracle or MS-SQL database, you would have to support both the application and the database.
One thing that led to the growth of ASPs is the high cost of specialized software. As the costs grow, it becomes nearly impossible for a small business to afford to purchase the software, so the ASP makes using the software possible.
Another important factor leading to the development of ASPs has been the growing complexity of software and software upgrades. Distributing huge, complex applications to the end user has become extremely expensive from a customer service standpoint, and upgrades make the problem worse. In a large company where there may be thousands of desktops, distributing software (even something as simple as a new release of Microsoft Word) can cost millions of dollars. The ASP model eliminates most of these headaches.
On paper, the ASP idea looked like a great win-win for everyone. So, what went wrong?
Tomorrow: What Went Wrong