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An Application Service Provider1 (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. This has now been taken over largely by Software as a Service (SaaS) type agreements and Cloud solutions, both of which are very similar to their ASP predecessor.

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 (e.g. 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 per cent availability, i.e. uptime); and security (data confidentiality, user authentication, data back-up and disaster recovery).

 The disadvantages to the end user of using ASP services are three-fold; first, security of the end user’s proprietary, customer and confidential information being entrusted outside its own organisation, secondly, the end-user is tied into the ASP’s price increases over which it has little control and upon which its business depends and thirdly, 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 werethe main reasons why ASP services were 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). In 2002, Europe launched its “second generation application service provision”2 initiative which, although focused on vertical business relations, was an attempt to re-establish and re-launch ASP as a good business model, especially for SMEs.3 To a large extent, this initiative has been eclipsed by “cloud computing” especially as many of the “big name players” such as Microsoft, Google, Amazon, Oracle, and IBM all offer SaaS/cloud services.

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 (e.g. providing online support) to small and medium sized companies (SMEs) which would not otherwise have been able to afford the capital expenditure, 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 (e.g. 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 colocation providers) which offer a large volume hosting infrastructure with bandwidth, 99.999 per cent reliability (uptime), access from anywhere, support for networks, users and software applications, and systems integration for vertical markets.

 The contract in this Contract is drafted for the benefit of the Customer and so is firm on commitment and performance from the ASP.

[1] Also called “hosted solutions” and “hosted development services”.

[2] SOAVE Project—Second Generation Application Service Provision in Vertical Business Relations—commissioned by the European Commission IST-2001-36530 in May 2002  (

[3] SME—Small to Medium-sized Enterprises:  Small (1–50 employees) and Medium (51–250). SMEs make up the majority of the European market (Small: 15,600,000; Medium 146,000 and Large (251 ) 31,000) according to EITO 2000 statistics.