From Paul Gil,
Your Guide to Internet for Beginners.
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While ASP can mean "active server pages" and sometimes "average selling price", the term "ASP" most commonly means "application service provider." So, "what exactly is an application service provider", you ask?

A. "Application service provider" is remote software that you access through a web browser. Instead of installing megabytes of software on your local C drive, you simply rent the use of some ASP software that exists elsewhere on the Internet. You never really own ASP software, you borrow it for a fee.

Yes, ASP software uses your web browser:

By using a configured web browser (commonly IE7) with the right plugins, users remote-access the software through the Internet as needed. In some cases, the ASP server is thousands of kilometers away. But as long as there is a solid high-speed Internet connection, the distance is irrelevant. ASP users save their work to the distant ASP server, and perform all their daily software tasks in the web browser interface. With the one exception of printing, all the software work is performed "through the wire" and on the distant ASP box. And all of this is done using only a web browser on the user end.

Example free ASP tools

Many ASP's make their money through advertising. Accordingly, they let you use their software for free. Webmail is the most common example of free ASP software:

• Hotmail,
• Yahoo Mail,
• Gmail
• Google Spreadsheets
• Google Docs
• Free Online Logo Makers

Example paid ASP tools
These next ASP products are very sophisticated, and provide very specialized services. Accordingly, it will cost you anywhere from $900 to $500,000 a year to use these paid ASP services:

• eProject.com for project managers (click to see screenshot of eProject ASP in action)
• Cvent.com to manage special events and perform online surveys.
• Cognos.com for enterprise database reporting. (click to see screenshot of Cognos ASP in action)

The 21st Century Software Trend: Lease Instead of Buy.

ASP's are becoming very popular because they can save companies millions of dollars in software costs. The ASP concept is called "centralized processing" or "centralized computing". The idea of centralized computing is to have one large computer with one central copy of the software instead of thousands of little computers with thousands of different copies of the software. This concept is not new...it dates back to mainframes of the 1960's. But only in the last few years have ASP's become sophisticated enough to earn the trust of large companies. ASP's have grown to the point that they now provide excellent software while dramatically reducing the cost of installation, maintenance, upgrades, and support desks. Upgrades are seamless and quietly done at night, and problems like viral infections and conflict over your Windows registry go away because software is never really installed.

What are the big benefits of ASP software?

1. ASP software is much easier to install and maintain than conventional software.
   
2. ASP software upgrades are easy, fast, and virtually headache-free.
   
3. ASP maintenance and support are much cheaper than having your own I.T. staff attempt to carry those burdens.
   
4. End users have fewer crashes, because there is no installed software that will conflict with other installed software.
   
5. It is cheaper and easier to leave an ASP service when you outgrow the product.
   
6. Because the ASP software is upgraded regularly without fee, you are not "revision-locked".

What are the downsides of ASP software?

1. If you do not have a reliable and fast Internet connection, your software performance will suffer.
   
2. Some users get grouchy if you force them to use Internet Explorer.
   
3. ASP software windows can be slow and clunky to refresh on your screen.
   

Related: more about ASP services here...