How ASPs works?

The Web and the Internet began to really heat up and receive significant media exposure starting around 1994. Initially, the Web started as a great way for academics and researchers to distribute information; but as millions of consumers flocked to the Internet, it began to spawn completely new business models. Three good examples of innovative models include: 
 • Amazon - Amazon (which opened its doors in July, 1995) houses a database of millions of products that anyone can browse at any time. It would have been impossible to compile a list this large in any medium other than the Web. 
 • Ebay - Online auctions make it easy and inexpensive for millions of people to buy and sell any imaginable item. It would be impossible to do this at a reasonable cost or in a timely manner with any medium other than the Web. 
 • Epinions - Thousands of people contribute to a shared library of product reviews. One of the Web's greatest strengths is its worldwide view and collaborative possibilities.


These different business models are all visible to anyone surfing the Web. One of the most interesting behind-the-scenes business models that the Web has created is called the ASP, or Application Service Provider. ASPs are a completely new way to sell and distribute software and software services. Although ASPs were possible before the advent of the Web, the Web makes them so easy to create that they have proliferated hugely in the last several years.

Defining an ASP 

ASPs tend to be made fairly complex and confusing in the media, but people have been using forms of the ASP for centuries. By looking at one of these existing models and seeing how simple they are, you can gain a great deal of knowledge about Internet ASPs. An airline is a classic example of a non-Internet ASP, and is extremely simple to understand. It therefore makes a great starting point into your understanding of ASPs.
 
Almost all Fortune 1,000 businesses, as well as many small businesses, use airlines extensively. Many individuals also fly frequently for business and pleasure. Yet the number of businesses and individuals that own their own airplanes is extremely small. Instead, we rely on airlines to provide travel services to us on a per-use basis.

The main reason for the lack of plane ownership is the extremely high cost of entry. Let's say that you would like to own and operate your own jet. Here are some of the costs involved: 
 • You have to purchase the jet. Jets cost millions of dollars.
 • You have to maintain the jet.
 • You have to hire people to staff the jet -- a pilot, for instance, is someone you will need, and pilots are extremely expensive.
 • You have to hope that the jet is in the right place at the right time for the people who need it. If not, you need to move the jet around at a high cost in terms of fuel, maintenance, etc.

Defining an Internet ASP

Even though airlines fit the model for an ASP, we generally do not refer to airlines as ASPs. The terms "ASP" and "Application Service Provider" are applied specifically to companies that provide services via the Internet. In most cases, the term ASP has come to denote companies that supply software applications and/or software-related services over the Internet. 


Here are the most common features of an ASP: 
• The ASP owns and operates a software application. 
• The ASP owns, operates and maintains the servers that run the application. The ASP also employs the people needed to maintain the application. 
• The ASP makes the application available to customers everywhere via the Internet, either in a browser or through some sort of "thin client." 
• The ASP bills for the application either on a per-use basis or on a monthly/annual fee basis. In many cases, however, the ASP can provide the service for free or will even pay the customer.

Advantages of ASPs 

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. 
• The ASP model can shift Internet bandwidth to the ASP, who can often provide it at lower cost.