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Can someone give me a real life example of an Application Server running on Windows 2008? What does an Application Server mean?

Following is a link from Microsoft about it, but it is not very clear:

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migrated from Jun 30 '10 at 1:21

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You are talking about a three-tier client-server based application system.

Think of it this way:

[client] ----\ _________
              /         \
[client] ----( Internet  )---[Application Server]---[Database Server]
[client] ----/

1st tier                           2nd tier             3rd tier

Application server hosts application that interacts with user while fetching data from the database server. e.g. you have an ERP system on the application, which takes request from the client via the browser, and process the data in the database server to generate query results.

Think about it. the interface runs on client computer, the logic runs on the application server and the data is stored on the database server.

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That can mean a number of things. The link you provided talks about an Application Server "role" in the context of a security profile. If you are using Windows Server to host programs that communicate with other servers, like BizTalk, than you'll want to set up your server with this role.

An Application Server usually means something that hosts web apps, or apps like SharePoint or BizTalk, as opposed to a server that is dedicated to hosting a SQL-Server database, or an Exchange server.

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