Application Service Providers

Abstract

Technological changes within the last decade have dramatically changed the business climate. The use of Internet by firms has lead to global production, consumption, and competition. Electronic commerce, or e-commerce, “is a modern business methodology that addresses the needs of organizations, merchants, and consumers to cut costs while improving the quality of goods and services and increasing the speed of service delivery” (Kalakota & Whinston, 1996, p. 1). The benefits of e-commerce include cost savings, direct and quick interaction with the (potential) customer, competitive advantage through business intelligence, digital production sales and distribution, collaborative development with partners, new product development, direct sales, marketing and advertising, publicity, customer service and enhanced customer relationship, and communication. Small businesses play an important role in the nation’s economy. They are the fastest growing segment of all business types. The importance of small businesses to the U.S. economy can be gauged from the following statistics provided by U.S. Small Business Administration (SBA): • Small businesses represent 99.7% of all employers, employ 50% of all private sector employees and account for 44.3% of total U.S. private payroll; • Small businesses generate 60 to 80% of net new jobs annually; and • Small businesses are employers of 39% of high-tech workers. Researchers have argued that the use of Internet has created a level playing field whereby a small business can compete effectively against larger competitors. Studies have shown that larger firms have made significant progress in e-commerce. But, the same cannot be said of small businesses. In a 2001 report, SBA noted that less than 2% of Internet use is directed at e-commerce. The lack of progress in e-commerce adoption by small businesses has been cited in several studies (Mathiyalakan, 2002, 2004). Small businesses face numerous e-commerce technology adoption barriers and as a result the pace of adoption has been slow. In addition to capital and access to latest technology, employees’ knowledge, expertise, and experience is an important determinant of technology adoption (Kwon & Zmud, 1987; Rogers, 1983). To overcome the technological and skill limitations identified above, several strategic options are available for small businesses. These include the use of external consultants, outsourcing, and the use of ASP amongst others. The focus of this article is on examining issues related to the use of ASP by small businesses. This article is organized in terms of five sections. After this introduction, we provide a background to ASP. Thereafter, we identify and discuss issues that are pertinent to the use of ASP by small business. This is followed by a discussion on future trends and our concluding remarks.