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To host or not to host?
Posted Apr 17, 2002
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Application ownership will be an ongoing debate, and ultimately boils down to the preferences and convictions of the CIO and/or IT staff within a given organization. In the CRM arena, there are traditional application vendors (i.e. Oracle and PeopleSoft) that offer hosted versions of their applications, while specialists such as salesforce.com gain momentum in the market with strictly-hosted CRM service. While salesforce.com is touting the hosted model as the "the end of software," there is skepticism in trusting mission critical data and operations to a third-party hosted service. Some areas of CRM lend themselves better to hosting than others. Take, for instance, the number of hosted salesforce automation providers in the market. SFA applications are logical for the hosted model given the remote nature of field sales. Through a Web browser, sales personnel can connect to customer and sales data, manage their calendars and meetings, and view new opportunities and leads. It certainly is compelling to manage a single instance of customer data that is accessible through a standard Web (including wireless Web) interface. The monkey wrench in this situation, however, is what to do when the sales person needs access to the data when he or she is not connected to the Internet. Disconnected access was previously the Achilles Heel of the hosted model (though isn't a problem exclusively for hosted applications), particularly in highly mobile environments such as field sales. As such, ASPs are creating versions of their service that enables sales reps to take pieces of the data offline and then synchronize the data to the centralized service when they are back online. In addition to accessibility, there are a couple of other major appeals with the hosted model -cost and maintenance. Typically, customers will pay an upfront implementation fee and then there is a monthly subscription fee. Additionally, there aren't major capital expenditures needed to support the implementation, which may make the hosted model attractive to companies with limited capital budgets. From a maintenance standpoint, the hosting partner maintains the application, which reduces the burden on the IT staff. Furthermore, a hosted model will accelerate the development cycle and product updates by hosted services compared with traditional software and its formal release schedule. Hosted CRM providers can continually make improvements to the services that will improve the usability and quality of the services, without requiring any upgrade on the part of the customer.
While the benefits are certainly attractive, there are some risks that customers should consider in the hosted model. Customers should closely examine the service level agreements offered by their hosted partners as a guarantee in the instance of system downtime. The backup and disaster planning strategies of the hosted partner is also something that customer should scrutinize. Hosted services partners should have at least a couple of geographically disperse locations for their data center operations to protect from unforeseen natural catastrophes and/or other disasters. Security in general is also something that customers should consider given that sensitive and proprietary company data is likely to reside on a server with potential competitors. Finally, customers should understand upfront any special issues that may arise if and when they decide to take the application in house, including timely access to data. In short, there is no right or wrong answer for whether companies should consider a hosted model. The strength and resources of a particular company's IT department may be a major driver in the decision whether to subscribe to a hosted model. For companies with limited IT resources and budgets, the hosted model enables these companies to exploit CRM application functionality within internal resources to maintenance and upgrade the applications. There are merits and downsides to both on-premise applications and hosted solutions, and companies will ultimately need to do a cost-benefit analysis and weigh the risks when making such a decision.
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