According to the Information Technology Association of America, an application service provider (ASP) is "a company that provides a collection of IT resources to clients or subscribers who access those resources via the Internet or other networking arrangements." With the many challenges that businesses face every day, the last thing they need to worry about are a lot technological issues that are beyond their area of expertise. Many businesses that run their own applications are forced to increase their staffs to include information technology experts who maintain and upgrade application software. Over time, this can become an expensive procedure. Many businesses are cutting costs by outsourcing their applications to an application service provider. While cost is usually the main reason for a company to enlist the help of an ASP, other benefits include saving time, gaining access to top-tier software, and providing scalability. Quite simply, an ASP allows managers the opportunity to do what they do best: run the business.

An application service provider can handle many aspects of a business. As Parveen Bansal explained in The Banker: "The ASP manages and delivers application capabilities to multiple entities from a data center across the private or public Internet on a rental basis. Typical hosted applications include: enterprise resource planning applications (human resources, financials, manufacturing, supply chain management); e-commerce; customer relationship management, (sales automation, customer services and other front-office applications); productivity applications (collaboration, workflow management, project management office); and e-mail and unified messaging services."

Since the application service provider industry is a relatively new area, many businesses have legitimate concerns about it. Security and reliability are just two of the issues that have made businesses reluctant to turn over full control of their applications to an outside source. The ASP industry as a whole is working diligently to address these concerns and prove that their services are valid and cost efficient. Overall, their efforts appear to be successful. As Samuel Greengard stated in Workforce: "Where there was once fear and distrust, there's now growing acceptance of the idea that outside companies can manage hardware, software, and telecommunications remotely. And, make no mistake, these so-called application service providers are forever changing the way companies view technology and how they use it to gain a competitive advantage."

Before entering into a formal relationship with an application service provider, a business should make sure they fully understand the service level agreement (SLA). The SLA is a document that protects the interests of both the business and the ASP, and usually guarantees performance levels in areas such as uptime, bandwidth, and interapplication communication. By taking the time to understand the SLA up front, a business cuts down on the number of potential problems and headaches later.

Small businesses are one sector that stands to benefit from the expertise of an application service provider. It is a quick and affordable way to acquire the necessary applications to run a successful business, especially if the business is a dot-com startup with no in-house staff or technology. Still, a small business (or any business, for that matter) should always make sure that the ASP is specific to their industry, offers a full line of business applications, is able to scale as the business grows, and can manage custom applications and solutions that are unique to the company. The ability of the ASP to integrate with the company's customers, suppliers, and partners can also be a crucial element in the business relationship.


Bansal, Parveen. "Grasping ASPs." The Banker. March 2001.

Borck, James R. "Enterprise Strategies: Customers Really Can Find Happiness with the Application Service Provider Model." InfoWorld. December 11, 2000.

Cameron, Preston. "Slaying the Competition Dragon: Selecting an Application Service Provider." CMA Management. March 2001.

Greengard, Samuel. "Handing Off Your HRMS: What You Need to Know." Workforce. February 2001.

Grevstad, Eric. "ASP Versus PC." Home Office Computing. March 2001.

Jossi, Frank. "ASP Trend Hits Home." Minneapolis-St. Paul City Business. December 8, 2000.

Lee, Mie-Yun. "Choose or Lose." Entrepreneur. December 2000.

Paul, Lauren Gibbons. "The ASP Dilemma." Electronic Business. January 2001.

Shutovich, Christina A. "ASP Model Can Reduce Short- and Long-Term Costs." Aftermarket Business. March 2001.

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