Don't Buy Any More Software!

Buying software may be a thing of the past. In the near future, a company will have all it needs to run its office with a few cheap computers, a network, and a fast Internet connection. A growing number of software services are available on the Internet, from e-mail and word processing applications to full-fledged customer relationship management (CRM) systems. Microsoft, the king of retail software, has even jumped on the trend, from its Microsoft CRM service to its new "Windows Live" and "Office Live" services. Hosted applications have a big upside including lower startup costs and ease of setup. But they also have some big pitfalls.

Hosted services are provided by an Internet-based company, for its customers' use, typically without any software being installed. Hosted services are typically more complex than standard web-hosting-and-e-mail services. For example, ITS Mail Guard is a very specialized service that filters spam and viruses out of incoming e-mail, mostly transparent to the end user. ITS also provides a hosted Microsoft Exchange service, allowing clients with widely scattered users to realize the benefits of Exchange without worrying about connecting all those users into the main office. Other examples include Google Apps and Office Live. Many hosted service providers started out providing web-based e-mail and related services, then leveraged their infrastructure to provide other online applications.

That leverage promises to be a big benefit of hosted services. ITS Mail Guard, for example, uses five data centers (each with its own backup) to provide extra-high-availability service. Plus, a hosted service provider can distribute development and infrastructure costs over thousands or millions of customers. Typically hosted services are provided for a small, but ongoing, monthly fee.

The down side is that with a centralized service provider, an outage will affect your company's operations. The provider is usually smart enough to invest significantly in its own infrastructure, but there are other potential problem areas, such as bugs in software updates that are rolled out to system-wide. For example RIM's BlackBerry service suffered an outage earlier this spring, and so did Google's GMail and Google Apps services.

Another area of concern should be a company's Internet connection: when depending on hosted services, the connection to the Internet becomes more important. A company looking to save money by using hosted apps and the cheapest DSL connection they can find may find it worth its while to double check their ISP's uptime guarantee. Most ADSL connections have a low uptime guarantee and a response time measured in days not hours. By contrast a T1 line is more expensive but usually has a much higher uptime guarantee and a four-hour response time in case of an outage. For mission-critical usage, a monthly fee for a secondary DSL connection to back up the T1 line may be cheap insurance.

Of course, outages can happen with an in-house server as well, but users may feel more in control if they can actually point to the problem and call someone to fix it. A higher startup cost, in the form of heftier hardware, can help prevent outages, but that is the main trade off between having your own server or applications and having someone else host them for you on expensive hardware for a small monthly fee.

Overall hosted applications promise to be an interesting area over the next five years as broadband becomes more prevalent and web-based software more advanced. It will be interesting to see how Microsoft and others adapt to the new business model.

May 2007

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