Pros & Cons of Hosted Solutions vs. Non-Hosted Solutions

Hosted Software Solutions

Back in the year 2000 when companies like Oracle, PeopleSoft, SAP and Siebel first advanced the notion that software as a service might be a viable business model, traditional software vendors scoffed: when was renting access to something ever cheaper than buying it in the long run, they asked.

What a difference a decade makes. In 2009 the market for SaaS or hosted solutions was eight billion dollars – an increase of 21.9% over 2008. According to the Gartner Group, a leading edge information technology research and advisory firm, by the year 2013 the market will total $16 billion.

Small businesses have been among the most enthusiastic implementers of hosted software lately. The packages they use most through second party hosting services are marketing, project management, time and billing, accounting/financial, CRM, merchant services, inventory management, messaging and payroll software.

But hosted solutions are not right for every business. Before choosing to go with a hosted solution, businesses should familiarize themselves with the pros and cons of hosted solutions.

Hosted Software Solutions: The Pros

• Cost Savings: Software is expensive. There are the upfront costs of purchase and implementation, and then there are the hidden costs of hardware, end user support and IT-related services (maintenance and upkeep.)
• With a hosted solution, implementation fees and customization costs are comparatively low. Hosted solutions require no maintenance, end user support or administration costs, since the responsibility for managing the software, hardware and network has been shifted on to the hosted software provider, thereby eliminating the need for outsourced IT services.
• Remote Access: You’re sitting in an airport with two hours to kill because your flight has been delayed. Might as well do something productive with this time, you think – and you open laptop you borrowed from your executive assistant, log on to your website and set to work. Hosted software solutions allow you to do that because hosted software can be accessed from any web browser around the world – you don’t need to have the software on your machine before you can use it. You can also synchronize your work in real time with that of other users in different time zones – something you would not be able to do with a web server that needs to synchronize off-network changes.
• Scalability: Hosted software solutions are designed to work with small databases and large, whether one person or a hundred from the same organization is using them. They accommodate the growth of your business seamlessly with optimal performance and minimum downtime. Of course, as your business scales up you may incur additional costs in the form of database licenses and data storage.
• Seamless Upgrades: Since the software is delivered over the Internet, application upgrades can be bundled effortlessly and the burden of reconfiguring the new software package is on the provider not the customer. Since customers are paying for the service rather than the software itself, upgrades are generally delivered without additional charge.
• Data Security and Integrity: Hosted software providers deploy state of the art security measures that are beyond the pocketbook of most small businesses. Additionally, they’re able to provide data backup systems more sophisticated than what most small businesses can afford.

Hosted Software Solutions: The Cons

• Ongoing Costs: Rather than a one-time purchase fee from obtaining software licenses and its web hosting plans separately, clients incur ongoing monthly costs. This can be a problem for clients whose revenues vary widely throughout the year.
• Limited Ability to Customize: In order to maximize their own profits, hosted software providers impose their own economies of scale by deploying the same application with the same core functionality to all of its clients. The application will not be customized to meet any one client’s individual needs.
• Security: Anyone with the right password and Internet access can log into a hosted application.
• Outages: Outages are rare but they do occur. Many hosted software providers are now factoring reliability into their service contracts with uptime guarantees e.g. “99% uptime or your money back.” The presence of such a guarantee should be a factor in choosing a hosted software provider in as much as evaluating different hosting plans.

Are Hosted Solutions Right For You?

A hosted solution may be right for new businesses with limited IT resources that don’t want to undertake the task of setting up and configuring software, or for established businesses that are experiencing a phase of rapid growth necessitating rapid upward scalability of software solutions.

For businesses that have made a large investment in their own IT infrastructures, however, many of the advantages hosted solutions offer may be redundant.

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