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 medical billing) 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, 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

The ASP model

The application software resides on the vendor's system and is accessed by users through a web browser using HTML or by special purpose client software provided by the vendor. Custom client software can also interface to these systems through XML APIs. These APIs can also be used where integration with in-house systems is required.

Common features associated with ASPs include:

ASP fully owns and operates the software application(s)

ASP owns, operates and maintains the servers that support the software

ASP makes information available to customers via the Internet or a "thin client"

ASP bills on a "per-use" basis or on a monthly/annual fee

The advantages to this approach include:

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

Key software systems are kept up to date, available, and managed for performance by experts

Improve the reliability, availability, scalability and security of internal IT systems

A provider's service level agreement guarantees a certain level of service

Access product and technology experts dedicated to available products

Reduce internal IT costs to a predictable monthly fee.

Redeploy IT staff and tools to focus on strategic technology projects that impact the enterprise's bottom line

Some inherent disadvantages include:

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 control of that function and instead relying on the provider

Changes in the ASP market may result in changes in the type or level of service available to clients

Integration with the client's non-ASP systems may be problematic

Evaluating an Application Service Provider security when moving to an ASP infrastructure can come at a high cost, as such a firm must assess the level of risk associated with the ASP itself. Failure to properly account for such risk can lead to:

Loss of control of corporate data

Loss of control of corporate image

Insufficient ASP security to counter risks

Exposure of corporate data to other ASP customers

Compromise of corporate data

Some other risks include failure to account for the financial future of the ASP in general, i.e. how stable a company are they and do they have the resources to continue business into the foreseeable future. For these reasons Cisco Systems has developed a comprehensive evaluation guideline. This guideline includes evaluating the scope of the ASP's service, the security of the program and the ASP's maturity with regard to security awareness. Finally the guidelines indicate the importance of performing audits on the ASP with respect to:

Port/Network service

Application vulnerability

ASP Personnel

Physical visits to the ASP to assess the formality of the organization will provide invaluable insight into the awareness of the firm.

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