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WW017. Application Service Provider Agreement (Drafted for the Service Provider’s benefit)


An Application Service Provider (ASP) will typically provide a fully hosted, fully managed and maintained suite of software applications which it offers end user customers as a service on a rental-type basis.

For the end user, adopting this type of service will allow it to avoid or at least minimise the technical and financial expense and risk incurred in buying, installing, maintaining and upgrading its own system as well as allowing it to avoid the expense of employing qualified technical personnel in-house to keep such a system operational and up-to-date. The ASP approach also allows end-user companies to access and use business-critical applications in a cost-effective (usually charged on a pay-per-use basis), scalable, risk-reducing and flexible manner since ASP software applications are delivered anywhere and at any time the end user business needs to use them; all the end user requires is an Internet access.

The key requirements of an ASP arrangement for an end user are: the right type of interoperable software applications (eg. typically accounting, human resource (HR), customer relationship management (CRM), enterprise resource planning (ERP) and other vertical market applications); full, effective and speedy customer support, continuous automatic upgrades ; low and predicable costs; accessibility (any where and any time); reliability (99.999% availability ie uptime); and security (data confidentiality, user authentication, data back-up and disaster recovery).

The disadvantages to the end user of using ASP services are two-fold; firstly, security of the end user’s proprietary and customer information being entrusted outside its own organisation and secondly, business continuity in the event that the ASP fails to deliver a good and reliable service or goes into liquidation leaving the end user vulnerable. These disadvantages may have been the main reasons why ASP services have been slow to take off in Europe as few well-known and trusted ‘brand name’ organisations have offered such a service (although ASP services have been a success in the USA). However, now in Europe, there is what is called the “second generation application service provision” initiative which, although focused on vertical business relations, hopefully will re-establish and re-launch ASP as a good business model, especially for SMEs . For ASP providers, the benefits of the ASP approach can help increase their market size and introduce a new source of revenue by opening up the use of their products and services (eg. providing on-line support) to small and medium sized companies (SMEs) which would not otherwise have been able to afford the expensive license and support fees associated with such software applications and services.

Typical ASP providers would be: Telcos and ISPs reaching up the value chain to sustain and increase revenues; system integrators, reaching down the value chain to protect their market share; and application software suppliers (eg, SAP, Oracle, Sage) wanting to expand their market from enterprise clients to SMEs and additionally capture a share of the service delivery and transactions market.

Depending on the type of ASP provider, the extent of the services (and therefore terms of the ASP Agreement) may vary from a full service ASP offering hosting, multiple and complementary applications, customer support and systems integration for horizontal and vertical markets; to a solutions ASP offering multiple and complementary applications (CRM, ERP, HR ), customer support, consultancy and systems integration for vertical markets; to an ASP enabler (typically the Telcos and collocation providers) which offer a large volume hosting infrastructure with bandwidth, 99.999% reliability (uptime), access from anywhere, support for networks, users and software applications, and systems integration for vertical markets.

The contract in this contract, which is drafted for the benefit of the ASP Provider, attempts to bridge all types of ASP, with clauses which can be varied or deleted as necessary.
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