The term Application Service Provider describes companies that supply software applications and software-related services over the Internet. The Application Service Provider (ASP) owns and operates a software application, as well as operates and maintains the servers and employees the people needed to maintain the application.
Subscribing to an ASP allows a company to avoid the purchasing, installing and supporting, and upgrading expenses that go along with software applications. Businesses choose to subscribe to an ASP based on economic factors driven by frequency of use and the cost of entry and maintenance much in the same way a business chooses other service providers, such as shipping or electrical companies. Businesses use shipping and electrical companies to provide services to them because it would be far too expensive for a company to operate its own distribution network as well as generate electricity for its self. Therefore, businesses use theses service providers to lower the incremental cost of these processes much in the same way subscribing to an ASP lowers the cost of software (1).
The advantages of using an ASP are extremely attractive for small businesses that want to take advantage high cost, specialized software. Subscribing to an ASP allows the company to be able to do more with less infrastructure and fewer people, thus allowing a company with smaller resources to have a competitive edge. In addition, ASPs also companies to take advantage of the pay-per-use concept. This allows a company to pay the ASP a subscription price based on the amount of time the software is actually used instead of the company paying an extremely high up-front purchasing cost for the software. ASPs also provide companies with the advantage of using the software anywhere, no matter what computer they are working with, and continuous upgrades. Both of these qualities are immensely important for companies that own and work with many computers. Even what may seem like a small upgrade can turn out to be expensive when a vast number of computers are involved in the upgrade process, and by providing these systems online companies do not have to download the software to every computer, saving time and money (2).
Having an exceptional accounting system is essential to a successful business operation. However, because of the high costs of operating advanced accounting software, many small businesses have not had the opportunity to use full-fledged accounting systems. By subscribing to an ASP and having the option to rent, rather than buy, small businesses have the opportunity to take full advantage of highly technical accounting applications (1). Many ASPs exists that are aimed toward companies that need to maintain accounting records consistent with Generally Accepted Accounting Principles. This software is designed in order to satisfy reporting requirements dictated by investors, lenders, managers, and tax agencies (2).
The process of companies being able to use advance accounting software at an economical advantage has changed the way companies interact with their accountants, and in some circumstances made it possible for companies not to have to hire accountants at all. Because the applications of the accounting software are online when using an ASP, businesses can allow their accountants to access files or data from a remote location. This is an extremely important aspect for systems available through ASPs. Having a company’s files available to their accountant from the accountant’s office would decrease the travel expenses incurred by accounting firm, thus, lowering the expenses of accounting services. Having a company’s files readily available through the ASP system would also give the accounting firm an increased sense of assurance that they have access to all information. By using ASPs to obtain accounting software businesses can take advantage of the best possible tools to manage growth.
NetLedger is one of the leaders in ASP provided accounting software. It is a completely intergraded system that uses the Internet to manage all aspects of small business, including accounting, e-commerce, bills, payroll, purchasing, and more (3).
Although subscribing to an ASP seems like the perfect solution for a company who lacks the resources to purchase highly technical accounting software, it does have its disadvantages. The most important downfall of the ASP industry for business is its lack of a specified regulator. ASPs are not currently regulated by any worldwide code of ethics, privacy, security, or certification. Accounting ASPs are dependent upon customer confidence, and therefore, may experience difficulty in attracting new clients. Unless the ASP industry can form a uniformed code of regulations and an organization to enforce these regulations the use of ASPs for online accounting may dwindle (2).
The concept of renting software online is an exceptional idea for any kind of business or business process. Using an ASP system to obtain advanced accounting software increases the profitability and efficiency of both the company and the accounting firm providing services, because of the advance information available to the business.