Application service provider

An application service provider (ASP) is a business that provides computer-based services to customers over a network. 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 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 basically four forms of ASP business. These are:

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

Some analysts identify a volume ASP as a fifth type. This is basically a specialist ISP 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 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.