Small and midsize organizations are at a crossroads. Globalization leaves these organizations exposed and expectations have never been higher. They are expected to adopt the same high-performance solutions as Fortune 100 companies and yet they lack the budget, staff, and resources to do so.

With the emergence of Application Service Providers (ASPs), these organizations now have instant access to a market once beyond their grasp - these small to mid-size companies can now compete head-to-head with their global competitors.

Applications running the day-to-day business are often what set a company ahead of its competitors: Customer Relationship Management, ERP, Supply Chain, Help Desk, Payroll and Human Resources. Such vital applications are becoming increasingly expensive for both ISVs and their clients to develop, implement, maintain, and support. Organizations are looking for other alternatives to solve their business problems.

Application Service Providers rent the use of business applications - using the Internet or other low cost communication infrastructure - to offer organizations quick, cost effective, and immediate use of strategic business solutions. The ASP owns the customer relationship for implementing, customizing, out hosting and maintaining business applications for multiple end-user organizations and charge on a "pay as you go" basis.

ASPs are emerging to bridge this gap between small to mid-tier organizations and high-performance business applications.

What is an Application Service Provider?

Application Service Providers (ASPs) deliver and manage applications and computer services from remote data centers to multiple users via the Internet or a private network. Obtaining these applications from an outside supplier is a cost-effective solution to the demands of systems ownership: up-front capital expenses, implementation challenges, and a continuing need for maintenance, upgrades and customization. Commercial ASPs offer leasing arrangements to customers, whereas non-profit or government organizations may provide these services with no fee. An ASP may be a commercial entity or a not-for-profit or government organization supporting end users.

ASPs give customers a viable alternative to procuring and implementing complex systems themselves. In some cases, ASPs even provide customers with a comprehensive alternative to building and managing internal information technology operations. ASP customers also are able to control more precisely the total cost of technology ownership through scheduled payment schemes. And with data processing performed off-site by a third party, organizations can focus on their areas of core expertise.

Benefits from using an ASP include:

* Speed to market: the ASP already has the equipment, applications and expertise ready to provide rapid market access
* Operational freedom: by outsourcing application management, the customer can focus critical resources on their core business function
* Improved performance: ASPs can apply their vast experience to implement best IT practices for superior levels of availability, security, backup, disaster recovery, and help desk (shadowing)
* Financial flexibility: this model reduces fixed costs and lowers overall expenditures for hardware, applications and management.
* Reduced risk: with no capital expenditure on software, hardware, and IT personnel, organizations can "test" a new technology with minimal impact to their existing environment and bottom line.

What kinds of customers use application services from an ASP?

Whether your company is large or small, or whether you're a consumer using applications from home, an ASP arrangement saves time and money, and simplifies ongoing system reliability and support. Application Service Providers (ASPs) deliver and manage applications and computer services-generally on a rental basis---from remote data centers to multiple users via the Internet or a private network. Most industry experts agree the most appropriate market for ASPs is small and mid-sized organizations, but all agree there is also opportunity within both large enterprises and consumers.

With the help of an ASP, small and mid-sized organizations can deploy enterprise applications that without an ASP would involve massive investments in software, deployment time and IT personnel. These businesses can then benefit from the efficiencies of integrated, enterprise applications that were previously not cost-effective to develop and use.

With business operations now increasingly dependent on complex and rapidly changing information systems, IT managers are embracing the ASP approach to ensuring secure, business-critical applications. Large companies may decide to enlist an ASP to quickly deploy critical, enterprise applications at an affordable cost, since the resource requirements for supporting these systems have grown exponentially.

Application rental for home PC applications is in its infancy. Its appeal to home users is based on the same benefits that corporations enjoy: a minimal up-front investment, regular maintenance, high reliability, and the ability to focus one's limited resources on areas of expertise and enjoyment. There are applications today that have already been successfully hosted to consumers, such as tax applications.

How reliable is the service from an ASP?

The goal for the ASP industry is to make the management of information technology as transparent ... and reliable ...as the management of sophisticated public telecommunications and data communications systems. Customers who turn to ASPs often find better application reliability and availability than they experienced from their internal IT organizations.

The reason for this is that running information systems for other entities is the ASP's primary business. The ASP has the staff, expertise and state-of-the-art equipment to maintain and sustain the most reliable and up-to-date service.

How much does service cost from an ASP?

Costs and service levels vary widely according to the types of applications and services provided. Some studies have indicated that by leasing an application from an ASP, customers save between 33% and 53% over purchasing and managing the hardware and software for the application themselves.

What kinds of applications can be delivered this way?

Just about any kind. Enabling technology from companies such as Citrix, GraphOn and SCO allow current applications to be leveraged in an ASP environment. The only difference in the application (unless it was re-written for the web) is that it is running on a central server managed by the ASP as opposed to on the end-users desktop or the company's server.

What about customizing the application?

Application customization is possible when ISVs modify applications to be hosted over the Web or for a specific organization. Depending on the application and the organization, this may or may not be sufficiently individualized to meet the needs of the customer. Many times minor changes can be made just turning on/off certain features and functionality inherent in the application. Applications requiring a high degree of customization may not lend themselves as well to a leasing arrangement.