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What is an ASP Business Model?

By Donn Saylor
Updated May 16, 2024
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The typical application service provider (ASP) business model entails the ownership, operation, and security of software applications and their supporting servers, the distribution of information through the Internet or other network, and the timely billing of utilized services. ASPs provide customers with particular services that would normally employ the use of costly software which the customer would have to purchase. These services make the ASP business model especially beneficial to individuals and startup companies who are operating on a limited budget but require the benefits of the ASP-provided software. Examples of ASPs include online auction and retail sites, blogging platforms, and standardized databases for use in government applications.

An ASP business model plan is unique among the many types of business models that are prevalent in the offline world. It is specifically tailored to the needs of the ASP and its customer base. In a typical ASP model, a customer agrees to the terms and conditions of the ASP, and, with certain types of software, the customer may be issued a license to use it. These factors protect the ASP, as owners of the software, from any unexpected legal or financial trouble that may result from a client's experience with their services.

High level security measures play an important role in the ASP business model. Customers rely on their sensitive information being protected at all costs. ASPs are charged with ensuring that client data, like email addresses, physical addresses, phone numbers, and taxpayer information, are kept private by not being sold to third party companies or hacked by Internet thieves.

The ASP business model guarantees the proper functioning, maintenance, and accessibility of its servers. A customer depends upon easily logging into the ASP's software, and this requires that supporting servers are operating properly and can be accessed from any computer. The model also normally includes the automatic updating of software and the distribution of information regarding changes and enhancements to the software or associated services.

Since operating an ASP can be a costly undertaking, the timely billing of customers is an integral aspect of the business model. ASPs commonly charge clients in one of two ways. A customer either pays each time they use the service, or they are charged a weekly, monthly, or annual fee.

These types of corporate structures can be employed by any company that disseminates their services through an ASP. They can be molded to fit a consulting business model, an IT business model, or a retail business model, to name just a few. With very little deviation in business model development, the ASP standard can work within the particular demands of many different companies and industries.

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