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 or software as a service (SaaS). The most limited sense of this business is that of providing access to a particular application program (such as customer relationship management) 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 led 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 services, 24 x 7 technical support, physical and electronic security and in-built support for business continuity and flexible working.

The importance of this marketplace is reflected by its size. As of early 2003^[update], 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.

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 website. 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, some large multi-line companies (such as IBM), use ASP concepts as a particular business model that supports some specific customers.