To use a rented software application, employees dial in to the Internet or a network, log in, bring up the application, and start using it with company data.  The ASP installs the software on its server, integrates it with the company's systems, and hosts it on its network.  The ASP is responsible for the hardware, software, system performance, up time, upgrades, maintenance, security, and backups.  The company is responsible for having enough bandwidth to access the application.  The company pays the ASP a fixed fee per user, per month.  Fees can also be assessed on a per transaction basis. 
(Source:  Tim Kearney, "Why Outsourcing Is In," Strategic Finance, January 2000.) 

Why would you want to rent applications instead of buying, installing, and maintaining them yourself?  The reasons are compelling.  If a business is in a hurry for a new system (who doesn't this include in these dot-com days?), instead of trudging through the long process of searching for vendors, evaluating them, and planning the implementation, it can simply rent an application and try it out for a while.  Information technology (IT) staff can focus on strategic projects and customer requests rather than spending time on the constant maintenance and updates that software applications require.  Price may be an advantage; it's difficult to predict whether it's cheaper to rent applications than buy them since the market is so young.  (Source: Steve Ulfelder, "Evaluate the ASP Phenomenon," Computerworld, January 3, 2000, page S22.)  Another advantage is when in-house expertise in a particular system does not exist.  The top reasons why companies are using ASPs, according to one survey, include speed of implementation, cost of application development and management, lack of in-house expertise, and the IT labor shortage. 
(Source:  Debra Malina, "Key IT Services.com" Computerworld, October 25, 1999, page 44.)

Currently, 22% of companies surveyed are using ASPs, and another 31% either plan to use or are considering using ASPs.  Nine percent have decided against them and 47% have no plans to use ASPs.  (Source:  Cynthia Morgan, "ASPs Speak the Corporate Language," Computerworld, October 25, 1999, page 74.)  The most popular applications being rented, according to one survey, include customer relationship management, e-commerce software, and messaging, including email and groupware. 
(Source:  Debra Malina, "Key IT Services.com" Computerworld, October 25, 1999, page 44.)

The growth rate for outsourcing is expected to be 22% annually through 2003 with sales of $110 billion, according to a recent study.  (Source:  Tim Kearney, "Why Outsourcing Is In," Strategic Finance, January 2000.)  ASPs are especially attractive to dot-com startups buying time and small businesses that cannot attract or afford top IT talent.
(Source:  Debra Malina, "Key IT Services.com" Computerworld, October 25, 1999, page 44.)

Security is the number one concern among IT managers using ASPs.  Ninety-six percent of managers in a recent survey cited concerns about security.  Companies using ASPs have to be comfortable housing their data on someone else's server.   Ninety-four percent of managers surveyed were concerned about the reliability and stability of an ASP as a long-term partner.  As ASPs weather tremendous growth rates, a company should lock down performance times and other measurements to insure the relationship maintains the expected results.  A third concern is the availability of the applications, or the uptime, cited by 80% surveyed.  The lack of customization available through ASPs is a lesser concern, cited by 43 percent. 
(Source:  Cynthia Morgan, "ASPs Speak the Corporate Language," Computerworld, October 25, 1999, page 74.) 

If you are considering outsourcing one or more applications to an ASP, here are some tips for choosing one:

1. Decide which applications should be outsourced.  Initially, most companies shy away from outsourcing their most mission-critical applications for control and customization reasons.
2. Create company-wide policies and guidelines for selecting and using ASPs.
3. Make sure the ASP knows the application.  
4. The system should deliver the appropriate speed and also be scalable.
5. Generally speaking, customization is frowned upon.  (As the market matures, this may change.)
6. Negotiate service-level agreements as well as payment terms.  
7. Make sure the ASP's corporate culture meshes with the company's.
   (Sources: Steve Ulfelder, "Evaluate the ASP Phenomenon," Computerworld, January 3, 2000, page S22, and Mark Hall, "The Case for ASPs," Computerworld, June 12, 2000, page 58.) 

For small businesses, two companies, Eledger and NetLedger, offer accounting package outsourcing and advertise by saying companies can do their books online.  For small and large businesses, a good accounting application to try out the ASP concept is travel and expense accounting and reimbursement.  
(Source: Tim Kearney, "Why Outsourcing Is In," Strategic Finance, January 2000.)