Application Service Providers (ASPs) - Guide to Cloud Computing for Business and Technology Managers - page 233

Packaged software developers can use the ASP model to convert the
infrequent buyer into a steady revenue stream customer. Usually, a cus-
tomer buys the latest version of a software product and then elects not to
upgrade for two or three generations. Under the ASP model, an ASP cus-
tomer is provided with the latest version of a software package and pays
a monthly fee to use that software, thereby generating a steady stream
of revenue for the software package developer. The software vendor
upgrades only the master copies on licensed ASP servers. The software
vendor is not required to maintain old code or support multiple versions
of a product. If customers do not like the upgrade, they cannot go back to
a prior version.
Customers of ASPs usually pay a flat fee to sign up and from then on a
monthly fee. For that monthly fee, the customer gets all upgrades automat-
ically as soon as they are released—all the new drivers, the new features
and everything. However, because the ASP is monitoring the customer's
payments, if the customer stops paying, it no longer gets the use of the
software.
11.3 ASP Business Model
ASP provides access to and management of an application. An ASP owns
the software or has a contractual agreement with the software vendor to
license it. Customers gain access to the environment without making invest-
ments in application license fees, hardware, and staff. The application is
managed from a central location (the ASP site) rather than the customer's
sites. Customers access the application via the Internet or leased lines. The
ASP is responsible for delivering on the customer's contract regardless of
its structure—sole provider or partnered. If a problem arises, the ASP is
responsible for resolving the issue. Service guarantees usually address avail-
ability, security, networked storage, and management and are spelled out in
service-level agreements (SLAs). ASPs enforce these guarantees by closely
monitoring the server environments and often add proprietary modifica-
tions to ensure performance uptime and security.
An ASP provides the application service as its primary business. The ser-
vice may be delivered from beginning to end by a single vendor or via part-
nerships among several vendors. A single-source vendor controls everything
from implementation to ongoing operations and maintenance of the applica-
tion. The customer deals with only one vendor, and that vendor has complete
control over the process. Under this model, the vendor must have expertise
in a variety of areas, maintain a data center infrastructure, and have high
capital requirements.