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How ASPs Work

Examples of ASPs

ASPs come in all shapes and sizes. One way to understand ASPs is to look at them from several different angles using real-world examples.

Simple ASPs

If you were to start a small business today, you would probably begin by contacting three or four extremely common and largely unnoticed ASPs:

  • A Web hosting company - Companies like Verio and provide a classic ASP scenario -- virtual Web hosting. These companies provide hardware, software, bandwidth and people to host Web sites for companies and individuals. Typically, they charge something like $15 to $30 per month for the service, and may host hundreds of accounts on a single machine.
  • An e-mail provider - A Web hosting company usually provides some sort of e-mail service with your Web hosting account. There are two other alternatives: free services such as Hotmail or Yahoo! Mail or e-mail server ASPs that run exchange servers, POP servers or IMAP4 servers and distribute them on a monthly-fee basis - For example, a company in the Raleigh area called Interpath offers a complete e-mail solution at a rate of $8 per month per account (as of 4/10/2000). The advantage of the second approach is that the e-mail address uses your company's domain name.
  • A fax provider Efax provides a free fax service that delivers faxes to your e-mail box. This is a classic example of a free ASP.

The huge advantage of using these ASPs is the fact that you don't have to do anything to get started. Five years ago, a small business looking for these services would have needed to:

  • Purchase Internet connectivity and a router
  • Purchase one or more servers for the Web server software, e-mail software, etc.
  • Hire a person to install and administrate the software
  • In the case of a fax machine, purchase the fax machine and a separate incoming line for it

Those are tremendous hurdles. Now, all of these services can be ordered and delivered on the same day, and the monthly cost for all three is probably less than $50 per month. The latest product category to enter the list of start-up ASPs is eCommerce Storefronts -- a storefront might cost $200 to $400 per month.

The other thing to note is that ASP versions of these services will be significantly better than anything a small business owner can afford to provide. For example:

  • In the case of Web hosting, the provider will normally have a huge amount of available bandwidth, and the bandwidth will be redundant at several levels.
  • If there is a problem, trained staff on site 24 hours a day will fix it immediately.
  • If you need more capacity, it is available with a phone call and a small adjustment of the monthly fee.
  • The ASP will backup the data on a regular basis and is responsible for disaster recovery.

No small business could afford that level of service with a home-grown server infrastructure.

Traditional ASPs

The "traditional" ASP sells a large, expensive application to large enterprises, but also provides a pay-as-you-go model for smaller clients. A typical example might be ad-serving software or auction software for a Web site. For example:

  • Engage offers ad-management software for Web sites. The software can be purchased on a yearly license costing tens of thousands of dollars per year. In addition, the software requires an Oracle database for the software to use. If the Oracle database is already installed and running in-house, then that is no problem, but if not it is a significant hurdle. The alternative is to let Engage manage the software as an ASP and pay Engage a CPM (cost per thousand) price for the service. Unless you are serving millions of ad impressions per month, the ASP model makes tremendous economic sense.
  • DoubleClick (along with many similarly positioned companies) is essentially an ASP that offers advertising software plus an advertising sales force. What is so interesting about this ASP approach is that the ASP actually pays the customer!
  • OpenSite is a leading supplier for auction software. You can purchase its software and operate it with a database, or access the software using an ASP model.

Nearly any piece of expensive software, including giant applications like SAP, PeopleSoft and Oracle, now comes in an ASP version to allow these companies to reach smaller customers affordably.