ASP vs. SaaS: Just Alphabet Soup?

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Sanjay Srivastava

Chief Digital Officer

February 19, 2013 - During a briefing on a new Software as a Solution (SaaS) solution we are building, a colleague asked, “How is SaaS different from an ASP?” Good question.

An Application Service Provider (ASP) hosts an application externally and enables users to remotely access it via HTML. ASPs convert upfront “capital expense” into an “operational expense” for the end customer. In many cases, they also assume the burden of managing the application within the data center. For many on-premise software providers, ASPs are the lifeline that gets them around the high capital expense and IT prioritization hurdles that hinder software deals today.

So, is SaaS fundamentally the same as ASP? 

Actually, the two couldn’t be further apart. At its core, SaaS is a “multi-tenant” application. Multiple users of the application are logically separated, their data isolated and secured, but they physically use a common set of services resources shared across all users.

A good analogy is home lighting. Say that each bulb is an end user; each room a logical aggregation of users with a common objective (like a company); and multiple rooms (or companies) share the same power grid. Organizationally, each room can be isolated and secured from a usage perspective – any bulb in a room really doesn’t know anything about the other bulbs in the house. By comparison, an on-premise application is like having a power generator in the closet running the bulbs for each room. The ASP basically moves each of the power generators from the rooms to the backyard and snakes the power lines back. Clearly, the multi-tenant application is an order of magnitude more efficient.

A correctly designed home lighting circuit is inherently scalable. As the holidays approach and we want to add festive lighting, we simply throw in more bulbs. In the software world, this design scalability is what ultimately solves downstream problems of performance and usage. Most previous-generation technologies can’t overcome the scalability challenge while trying to run on the computing equivalent of backyard power generators.

Ideally, home lighting is self-optimizing, monitoring how power is consumed and changing a fuse here, replacing a higher capacity wire there. Similarly, SaaS application designers continuously tune their product based on ongoing visibility into how the product is utilized. Everything in the home lighting design is designed to work together. You don’t have the bulbs in one room using DC vs. AC, or US vs. UK plug configurations, requiring adapters and converters. SaaS applications are designed “net-native” with internet distribution in mind, eliminating the convertors and adapters when hosting applications together. 

Thus, despite a few similarities, SaaS is fundamentally different than ASP. Multi-tenant applications are inherently scalable and much more efficient to run, and costs don’t go up with increased usage. They are specifically designed for the net and intentionally avoid the unnecessary complexity and expense of adapting and reconfiguring. Relative to an on-premise software which must be orphaned by the application developers once installed, SaaS applications can be perpetually self-optimizing.

All of this makes SaaS a more scalable solution that can be continually tuned to meet users’ needs much better, returning a significant increase in value with a solid and rapid return.