The Pros and Cons of Hosted Software

Publishing date: Mar 06, 2006 05:43

Software-as-a-Service is getting a tremendous amount of attention. SaaS has many "Pros," to be sure—and some "Cons" as well. This piece outlines the good and the bad, and suggests that the benefits outweigh the shortcomings.

When hosted software providers came on the scene several years ago, traditional software vendors scoffed, doubting these upstart "software as a service" vendors could make a dent in their market share. They didn't buy the concept of software offered on demand over the Internet on a monthly basis. As it turned out, they were wrong.

The number of businesses embracing hosted software has grown steadily, especially in the last couple of years, with small businesses leading the charge. According to the Yankee Group, the applications that SMBs are most often implementing via a hosted provider are marketing, project management, time and billing, accounting/financial, CRM, merchant services, inventory management, messaging and payroll.

But before an SMB decides to select a hosted application, it should have a sense of its benefits and limitations. Yes, there are limitations. But, if the model is used correctly, the limitations will not outweigh the benefits.

The Pros 
The vendor is on the hook. The typical hosted software provider holds the responsibility for:
• Managing both the software and hardware components of the application.
• Network issues such as redundancy, data backup and disaster recovery planning.
• Managing the data center or centers that deliver the application.
• Upgrading the software automatically for customers on a regular schedule.

Simply put, hosted software can save a company the headaches of ongoing maintenance, time and money in IT support and equipment costs.

Lower total cost of ownership (TCO). Hosted software carries a set price per user per month. Traditional software, even for small businesses, can cost thousands to tens of thousands of dollars in implementation fees, hardware, maintenance, services and support. With zero maintenance, end user support and administration costs coupled with comparatively low implementation and customization costs, hosted solutions offer a much better TCO than on-premises offerings.

Scalability. Hosted offerings are designed and finely-tuned to scale seamlessly for large numbers of simultaneous users. As such, they are able to easily maintain performance levels and uptime as your organization grows and the volume of data stored expands over time. With an on-premise solution, managing performance and uptime are burdens the customer takes. They can involve additional costs in database licenses, skilled personnel, hardware and infrastructure.

Frequent upgrades Updates are made frequently and, for the customer, effortlessly. Because the software is delivered over the Internet, hosted providers have greater flexibility in upgrading the applications and rolling out changes to customers. Traditional software vendors, by contrast, might upgrade software once a year, if that, but the customers bear the burden of reconfiguring it and paying for the newer version. Using the hosted model means customers can do more to shape the application.

Accessibility.Hosted software can be accessed from any Web browser around the world. Users in different states, countries or even continents can access the same information in real time without the delay of synchronizing off-network changes as is the case with a client-server on-premise solution, or needing additional infrastructure in the form a Web server that has to be purchased and maintained with a Web-based on-premise solution.

The Cons

Single tenant. Some hosted applications are built on a "single-tenant" architecture. They will encounter many of the same cost problems experienced with traditional software. Although they've managed to outsource their application, they haven't taken advantage of the massive cost savings that can be realized when multiple customers share the same application and hardware. The latest generation of hosted providers has been built on a "multi-tenant" architecture, which allows the vendor to maximize the efficiencies of scale using a shared application and shared hardware.

Cookie cutter. An early criticism of hosted software is that they were “too vanilla” and couldn’t be tailored to fit companies’ business processes. In addition, extensibility and integration was cumbersome. However, some hosted providers have closed this gap and now offer customization platforms that are extremely robust and make integration and extensibility as easy as point-and-click

Outages. Although rare, there is always a possibility that an outage may occur. This is why many hosted providers build in “uptime guarantees” within their service level agreements (SLAs). Some vendors offer a “99.5 percent uptime or money back” guarantee or similar. With competition in the hosted space growing at a steady rate, reliability will keep improving. The presence or absence of a guarantee on uptime should be an element considered when selecting an on-demand provider.

Accessibility. Just as much as it’s a Pro, accessibility can also be a Con if one does not have access to an Internet browser.

The rapid increase in businesses adopting hosted software are an indication that the "Pros" are outweighing the "Cons" for a growing number of companies. To help compete in a global market, SMBs require the resources that have traditionally been available to only enterprise companies. Hosted software—especially integrated accounting/ERP, CRM and Ecommerce suites—provides this resource to them at an affordable price. So no longer are we in a wait and see phase—we’re now in a “go for it” stage. 

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