When application service providers first popped onto the scene, they promised to provide cost effective technology solutions to companies of all sizes. The rationale was simple: economies of scale will allow ASPs to provide everything from computer servers to specialized applications on a pay as you go model. This option would allow companies to avoid huge cash outlays required to purchase hardware, software, and skilled staff. After all, running I/T applications is NOT the core competency of most companies, correct? The strategy to capitalize on this new market was also simple: build it, and they will come. And build it they did. Data center after data center was created to host pending onslaught of new corporate customers. But, they didn’t come. There are multiple reasons ASPs did not receive the volume of customers they anticipated. Everything from I/T staff resistance to security issues hampered customer acceptance. Exactly why Gartner and everyone else totally miscalculated the adoption rate of ASP services is not the focus of this article. What I want to analyze is the business model employed during this first generation of application service providers.

from the article:  ASPs Hear the Sirens' Song by Thomas E. Lah