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Industry Basics: Application Service Providers
By Phil Wainewright

May 18, 2001

Application service providers are the powerhouses of the ASP value chain. They take responsibility for operating the business applications at the heart of every ASP solution.

Generic Applications
The largest ASPs offer a portfolio of application functionality that can be adapted to the needs of a wide variety of businesses. They often use a “Master ASP” model (see below) to extend their reach into multiple markets, working with channel partners to tailor their offering to the needs of individual industries, communities and customers.

  • Enterprise ASPs are the most recognised form of ASP. They provide established enterprise software brands, such as Lawson, Microsoft, Peoplesoft and SAP, via the ASP delivery model. Most offer a pre-integrated portfolio of complementary suites and applications.
  • E-Business ASPs specialize in collaborative Internet solutions. Some offer specific Web site enhancement services such as customer support, online order processing or payment handling. Others provide electronic trading services such as digital marketplace hosting or secure collaborative commerce networks. Many operate intranet or extranet services such as field service management, partner relationship management or design chain collaboration.
  • Business ASPs provide business administration applications for the small and medium-size enterprise market. Some provide branded applications from Microsoft and simliar vendors, while others have developed their own core functionality, often with the ability to integrate with optional third-party services.
Specialist Applications
Large numbers of ASPs specialize in particular areas of expertise or vertical industry knowledge. The main strength of these ASPs is their empathy with their target customer base, and therefore they prefer to maintain a direct customer relationship rather than working through a third-party channel.
  • Vertical Service Providers (VSPs) tailor solutions to a specific vertical industry, such as banking, healthcare or professional services. With a management typically drawn from the industry they serve, a VSP aims to be a one-stop source of applications and online services designed to complement its customers’ existing business activities.
  • Specialist ASPs offer applications that require special expertise to manage and operate, such as intensive data analysis or high-volume document management. They employ in-house experts who recognise and understand the requirements of their specialist user base.
Master ASPs
ASPs that offer a portfolio of generic applications have found they can often achieve greater economies of scale if they hold back from attempting to maintain a direct relationship with every individual customer. A new class of master ASPs is emerging to take on a wholesale role in the ASP value chain, operating applications in large-scale facilities for delivery to end customers and users via a partner channel. Their service integration partners, such as value added resellers, business consultancies and portals, adapt and integrate the core application functionality to meet the requirements of individual customers. Partners often also act as the customer’s first port of call for service, support and billing.

Hybrid ASPs
All of the companies listed on this page are pureplay ASPs — companies whose core activity is the operation of business applications for online delivery. Many of the companies described on other pages are ASPs in addition to their main business activity. They include many business service and application providers, certain forms of infrastructure service provider, and various forms of service integrator — the subject of next week’s industry basics article.

Phil Wainewright founded in 1998 and is the publisher of Loosely Coupled. He can be contacted at

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