What is an Application Service Provider?

An application service provider (ASP) is a third party that provides its customers with remote access to software applications. The vendor maintains the software on its own hardware platforms and provides routine software updates. Users are typically charged a per-person monthly usage fee in exchange for accessing the software. This arrangement allows customers to avoid an up-front charge to buy hardware and software, as well as the cost of in-house information systems staff. This reduces the fixed costs of customers, so that they can turn a profit at a lower sales level. Because of the lower breakeven level, startup companies are more likely to employ application service providers.

Advantages of Using an Application Service Provider

There are several key advantages to using an application service provider. First, the ASP routinely upgrades its software, so that clients do not have to deal with this issue. This also means that clients always have access to the latest software version, with all of the extra features incorporated into it. Second, clients can access the ASP’s software services from anywhere, as long as there is an Internet connection. This reduces the need to have a central staff location, since employees can work from home. Third, clients avoid the sometimes-substantial cost of purchasing the software; instead, they pay a much smaller monthly fee that is usually set based on the number of users. Thus, if the number of users declines, so too will the monthly access fee charged by the ASP. This is a major benefit for smaller businesses that do not have much excess cash. Finally, many ASPs can accommodate rapid increases or decreases in the number of client employees accessing their system. This means that clients do not need to worry about making major expenditures for large software upgrades, with the attendant bother of installing these systems. The number of advantages noted here provides a strong argument in favor of using an application service provider.