Mike,
Thank you for your question, I hope that you find the following Answer useful.
The 'hosted vs. local' question is one where every client will require
a unique answer. Beyond the basic pro and con view I present below,
there will also need to be consideration for how the software
applications fit into the overall corporate strategy. Also, it is
important to understand the nature of the software, how it will be
used, and how it will integrate with other services and applications
already in use.
First, however, the pros and cons you asked for. I am restricting this
list to the area of "Business Management Applications", because some
of the pros and cons will be different for other product categories
such as CRM, office productivity, e-mail, and so on.
=======================================
Hosted Business Management Applications
---------------------------------------
Pros:
1. Cost allocation - most ASPs will license by some metric related to
your client's headcount. This means that the cost of the software can
be easily combined into the overall overhead or burden rate, and
grows/declines in relation to your client's growth/decline.
2. Quality control - the only constant in business is change, and for
the software industry that means new updates, bug fixes and patches,
and new version releases. An ASP has both the expertise and the
resources to properly evaluate each new patch or release on a test
system, ensure that it is ready for use, then update the production
systems at a time that is convenient for everyone.
3. Cost management - not all new releases or updates are free. This
can mean a relatively hefty annual 'maintenance contract' fee for
companies purchasing software directly for local deployment. With an
ASP, you pay for the service, not the software, which means that
upgrades are usually included at no extra charge.
4. Focus on the business - for small businesses in particular, IT
expertise is often outsourced to a third party, or total non-existent.
WIth the complexity of properly configuring and supporting business
management software, many small IT consulting shops are not properly
trained to provide the level of user support and system support
required. In a hosted model, support and maintenance are included in
the service fee, thus resulting in savings from eliminating the need
to train or hire someone to be expert in the system.
5. Big business power at a small business price - an ASP is able to
provide the use of solutions that would otherwise be beyond the reach
of most small businesses. The infrastructure for a hosted solution can
be shared between many clients, giving each client access to the
per-user pricing that otherwise would only be available to large
enterprises. Even for large enterprises, the total buying power of an
ASP can often result in per-user pricing that is better than the
equivalent cost of deploying locally.
6. Speed of deployment - a hosted solution can often be deployed to a
new client in a matter of days, the majority of that time being
training and loading of initial data.
7. Data integrity - for small businesses in particular, the cost of
proper data backup systems can often equal the cost of the system
being protected. Data backup comes standard with any professional ASP.
Coupled with backup power, this prevents a power grid blackout from
destroying weeks or even months worth of data.
8. Easy growth - most business management solutions come in a modular
format, meaning that you can choose to only use certain modules
instead of the whole system. With a hosted solution, your clients can
easily add modules as needed, without needing to go through a whole
new procurement process, installation, validation, etc. Even without
adding modules, the hosted solution has the necessary capacity to
allow more users to be easily added without affecting performance, a
useful attribute for rapidly-growing businesses.
9. Easy remote access - clients with remote offices or teleworkers
will appreciate the ease with which they can access the hosted
solution from any Internet connection. This is inherent in the design
of the hosted model, since even the employees in the client's main
office will be accessing the solution in the same way. To achieve the
same capability with an in-house solution would require the implement
of both a remote access system, and a robust security strategy.
10. Security - ASPs know that their continued success depends on their
ability to protect their customers' data. Therefore, they deploy
security solutions that most small businesses can only dream about,
and back it up with networking monitoring and tracking to prevent any
maliscious activity. This is something that even many large
enterprises cannot afford to do, or do not have the expertise to do.
Cons:
-----
1. Limited customization - by design, ASPs deploy the same application
to many clients in order to achieve economies of scale. Any
customization that is done is often for aesthetic reasons only; core
functionality, and in some cases even database design, are immutable.
For some clients, this can be a deal-breaker.
2. Security - hosted services, by their very nature, have to maintain
an open front door to the Internet. Anyone who obtains a set of valid
credentials can walk through that front door to access the system.
This places the onus on the client to ensure that all employees follow
safe computing practices, and protect their login information. For
some companies, this is a con... for most companies, this actually
becomes an unitended pro.
3. Out of sight... - if something goes 'wrong' and users are unable to
use the application, the fact that it is hosted elsewhere can result
in increased frustration, and potentially longer waits for resolution.
At the same time, depending on the size of the customer, this too can
be a pro as the same scenario can happen with a local solution located
in another facility.
4. Loss of control - hosted services are often not a good choice for
any client with a strong IT organization, as it requires that the IT
organization relinquish some control. At the same time, though, many
ASPs provide value-added management tools that can provide greater
control over the application and its use than would be possible in a
local deployment. Another con that might actually be a pro.
5. Costing model - most ASPs license their hosted applications on a
per-seat/per-user basis. Depending on the needs and resources of the
client, this may actually result in a higher annual cost versus a
single one-time purchase. However, since almost all business
management software has moved towards a licensing scheme that is also
based on the number of users, this becomes a wash.
6. Virtual relationship - many ASPs are still in the mode of offering
the services that their clients ask for. Some ASPs are beginning to
move into the mode of consulting with the clients to determine what
services the client actually needs. This subtle difference can result
in a virtual relationship that grows with the client, or one that
deteriorates as the client's needs change while the ASP doesn't.
7. Localization - depending on where the ASP is located, and the
capabilities of the hosted application, there may be problems
localizing the service for the client's specific needs. This affects
everything from currency type, to date/time formats.
8. Operating expense - again, depending on the in-house capabilities
of the client, the net operating expense of the hosted solution may
actually be higher than a local deployment. However, as many companies
do not have all of the resources and expertise to match those
described in the Pros section above, this is often not an applicable
con.
Locally-Deployed Business Management Applications
-------------------------------------------------
Pros:
1. Complete control - the client controls every aspect of how the
application is deployed
2. Security - as no data needs to travel outside of the client's
corporate network, there is less chance for data interception or theft
3. Customization - depending on the application deployed, the client
will be able to customize the solution to meet their exact
requirements
4. Costing - some applications do not have per-user licensing
requirements, making them truly a one-time purchase.
5. Selection - there are a lot more choices available in the software
marketplace for outright sale versus hosted applications, providing
clients with greater choice and flexibility in choosing the right
solution.
6. Options - many software vendors provide pricing options and
discounts based on the tied-sale of software and implementation
consulting.
7. Local knowledge - depending on the application deployed, it may be
possible to find local IT consulting shops with the necessary training
and certification to support the system, providing a more-personal
level of support and maintenance.
8. Upgrade at your own pace - not all upgrades are good things, so
having complete control also means controlling when (and whether) to
deploy updates released by the software developer.
Cons:
1. Maintenance costs - many software developers now charge annual
maintenance fees in order for clients to receive the latest patches
and upgrades to their software investment, resulting in costs that
many clients will have difficulty justifying.
2. Maintenance/Support resources - software vendor and system
integrator help desks often cannot solve problems that occur within a
client's application, meaning that the client must either train an
internal resource against this eventuality, or retain the services of
an outside expert if one is even available.
3. Backup/Redundancy - as mentioned previously, the costs associated
with data backup solutions can often equal or exceed the cost of the
systems being protected.
4. Remote Access - as mentioned previously, providing remote access to
a local system requires deploying both a remote network access
solution, as well as a robust security strategy.
5. Security - a local deployment requires both logical security as
well as physical security; for many small businesses, their entire
business can be destroyed if a single computer is stolen during a
break-in and all of its data lost.
6. Reliability - if it breaks, the client needs to fix it, or needs to
maintain a redundant backup in order to prevent downtime. This is
often standard practice for many ASPs.
7. Prevention - in this day and age where a new Microsoft Windows or
IIS exploit/bug is discovered almost daily, the need to stay on top of
regular system updates, patches, and policy changes can be a full time
job.
8. Business evolution - when it is time to move to a newer
application, the client will be on their own when it comes to
migrating data and user information. For many ASPs, this level of
service is automated.
9. Capacity - related to growth, as the number of users increases the
need to migrate to larger and faster computing platforms can be both
expensive and difficult.
=======================================
As you can see, many of the 'Cons' are dependent on the exact
situation that each client finds themselves in. Generally, clients who
are experiencing rapid growth are best advised to go with a hosted
solution. Clients who already have a heavy investment in their IT
infrastructure, and who use many custom software applications that
interoperate, are better off with a local deployment that can be
customized to meet their exact needs.
If you would like clarification to any of these Pros and Cons, please let me know.
Regards,
aht-ga
Google Answers Researcher |
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