The Myths Surrounding Hosted ASP
By Simon Davis
INTRODUCTION
While it is certainly true that hosted applications have captured both mind and market share over the past two years they suffer from both the hits they took in the early part of the 21st Century and a powerful backlash from the big integrators. This has been brought on by the threat of more powerful applications, low capital investments and the pay-as-you-use service model.
From the potential customer's point of view the challenge is that of separating myth from reality and, while this paper can in no way be seen as impartial it will assist the potential purchaser by flagging up the issues. Let us consider several popular misconceptions:
Myth No1. Hosted solutions are more expensive than on-premise solutions in the long term
This is a highly contentious argument doing the rounds at present and such a generalisation that it may well be impossible to substantiate. A conclusion one way or another may not change firmly held views in either camp. Nonetheless it is an issue that must be addressed by potential purchasers. The answer may depend on the nature of the specific problem and the solutions brought in to solve them in the specific environment in which the solution has to exist. For the purposes of this brief analysis we compare the likely costs of a 50-user implementation.
Starting with the on-premise solution from a financial perspective. Firstly this solution requires that the software be purchased outright at the beginning of the transaction. Costs for an enterprise solution will usually be based on a per-user seat count and a range of functionality supported. The costs may range from around £500 to £3000 per seat depending on the product selected.
Recent industry research suggests that software purchase only represents 14% of the total cost of an enterprise installation. That doesn't include any necessary implementation project to install and configure the product. Also allowance must be made for internal IT commitment to get the system configured. Conservatively add 2 times the cost of the software. It will then be necessary to purchase the hardware and other infrastructure required to run the software and assign appropriate personnel to manage the hardware, software and database on a go-forward basis. Arrangements have to be made to support the software in the long term from either the supplier or a third party vendor and fees for this are broadly based on a percentage of the original software costs, (around 18-20%).
The hosted solution does not require the upfront investment in either software or hardware. It also does not require the intervention of any internal IT staff at implementation or assignment of a long term database administrator as these tasks are effectively outsourced to the hosting provider. You may be asked to pay for some level of customisation if your requirements are highly specific but this is often not the case. There are though monthly recurring payments to the Licensor for the service and these are normally on a per user basis. Hosting and ongoing support are generally bundled with the monthly recurring charges.
Consider these broad analyses:
ON-PREMISE
| YEAR 1 | YEAR 2 | YEAR 3 | YEAR 4 | YEAR 5 | |
| SOFTWARE | 75,000 | ||||
| IMPLEMENTATION | 150,000 | ||||
| HARDWARE | 60,000 | 60,000 | |||
| Dba | 40,000 | 40,000 | 40,000 | 40,000 | 40,000 |
| SUPPORT | 13,500 | 13,500 | 13,500 | 13,500 | 13,500 |
| Total | 338,500 | 53,500 | 53,500 | 113,500 | 53,500 |
| 5 YEAR TOTAL | 612,500 |
HOSTED
| YEAR 1 | YEAR 2 | YEAR 3 | YEAR 4 | YEAR 5 | |
| HOSTED SERVICE FOR 50 USERS | 60,000 | 60,000 | 60,000 | 60,000 | 60,000 |
| IMPLEMENTATION | 80,000 | ||||
| TOTAL | 140,000 | 60,000 | 60,000 | 60,000 | 60,000 |
| 5 YEAR TOTAL | 380,000 |
This is by no means a definitive analysis and the end result will depend on the particular circumstances. Recent analyses have shown that on-premise solutions are approximately 60% more expensive, taking a five year view. Another important consideration is cash and much of the on-premise costs are ‘up-front'. Another feature of hosted solutions is the tendency to include product updates in the licensing model.
Myth No 2. If the Internet is down then my operation is down!
This may have been a legitimate gripe in the early days of the Internet when the web was immature and the data centres were not as well developed and stable as they are now.
The reality now is that the hosted co-location model is so stable that it is more reliable than most companies network infrastructure. Redundancy is so overwhelming that even if a number of crucial links collapse or are taken down, the by-passes take over seamlessly. MarketDeveloper's data centre has 11 different telecoms / utilities suppliers and has three stage diesel UPS's.
You should look for an access and availability record exceeding 99.5% on a 24/7 basis and with a history going back at least 18 months.
Myth No 3. Hosted solutions have only basic functionality
This is really a myth of times past. First generation hosted CRM did, it is true, have limited functionality and some of the packages available now and sold as CRM are really nothing of the sort. The plain reality is also that many companies specifying CRM packages rarely want all the functionality that is available. The nature of the hosted solution means that it is an ideal medium for supplying modular solutions to specific business problems. Another way of describing this is to say that, in the same way as you only pay for the licences you need, you only pay for the functionality you need.
Having assessed the functionality you require, put budget in place and then short-listed suppliers it is unlikely that you will end up with a 100% functional match with any one vendor. The next step is to assess which solution best meets those needs that have the highest priority. Some packages, and MarketDeveloper is one such, allow the building of bespoke modules specifically designed with the customer's wants in mind and integrating fully with the rest of package.
MarketDeveloper has the following modules available:
- Data warehouse
- Reporting and analysis tools
- Campaign Manager
- Workflow automation for both Sales and Marketing at two different managerial levels, Customer Support and Customer Management.
- Stop and suppression file management
- Sales Order Processing with integration to most major financial packages
- Survey Manager for adding and analysing Customer surveys
- Data Protection (operational and audit)
- Product Manager and catalogues
Myth No 4. Hosted solutions are only for small or midsize companies
This is more a question of perception rather than a real barrier now. It is true that low costs of entry and ease of implementation, often not requiring intervention from a company IT department give the impression that these are for small companies only. Research suggests that the majority of hosted CRM deployments are less than 50 users and if you divide the number of the largest provider of hosted services customers by the number of seats the answer is 15. Add to that the slow dial up speeds in the pre-broadband environment and servers that couldn't handle the capacity
In part this perceptual barrier is as result of the tactics of the vendors trying to ‘get under the radar' of the large scale integrators and the fact that large companies were slow to adopt. “Salesforce.com is really only an SFA tool” is a comment heard less and less these days – it started off that way to be sure but the addition of new modules such as Supportforce have broadened the appeal. NetSuite is perceived mostly as an ERP solution long after full CRM became a reality. MarketDeveloper began as an SFA tool but now has full Marketing Automation and customer contact capabilities.
With the majority of large companies having invested in large, expensive packages from large scale integrators (Siebel, Oracle, SAP, PeopleSoft etc) in the last five years and with the reputational risk that comes with a change from the known to the unknown, it is to be expected that there will be a fair degree of inertia. Some of the large integrators are even quoted as saying that hosted applications will not work at their sort of scale.
Those enterprise companies evaluating the hosting model irrespective of sunk costs are now realizing that software-as-a-service solutions provide very viable alternatives to the traditional on-premise products. Maybe we are finally seeing the ‘new paradigm' that the evangelists foresaw in the web five years ago as hosted replaces client / server!
Myth No 5. My data is more secure if I have the software in house
Some potential customers, concerned by security issues, visit our offices to review physical security. Locks and toughened glass reasonably impress them, but when they go to our data centre and have their irises scanned a palm print taken and a photographic visitors card issued, it really does impress!
Security precautions now extend far beyond the physical. It is now a fact of life that few companies, unless they are themselves in the data centre business, (Banks here are probably the exception) are able to offer the multi level data protection that a modern day data centre can. 11 different utility suppliers, 3 levels of back up electricity generation, two systems for air conditioning with automated redundancy, Gbits of bandwidth, the list goes on.
In the very unlikely event that a data centre fails then a hot site back up is usually provided that, while without all the facilities of the data centre, will maintain functionality until the data centre is back up.
Most hosted applications now have, as a minimum;
- SSL or https encrypted transmission and Secure Connectivity.
- Intrusion Detection and Prevention Systems (IDS and IPS)
- Multi level anti virus
- Mirrored servers with full redundancy with complete firewall protection
- Rigorous data back-up with off site storage
The modern day reality is that the average hosted application is far more secure than any client held application and where my company has been audited by potential users this has always been found to be the case.
The .net version of MarketDeveloper was launched in Q1 of 2005 after 18 months of development. What is unique amongst hosted applications is the ability to run MarketDeveloper on intranets. The old issues that hosted applications are not secure enough still raise their heads where systems are seen by customers to touch mission critical areas. Some companies have either set security hurdles too high or ban the use of hosted applications at all for these reasons. Intranet delivery therefore gives these users the advantages of client/server customisation with all the benefits of web delivery. One of MarketDeveloper's .net launch customers will be a US based privately owned multi national who have been running it entirely on their Milan controlled intranet. Continue on the Next Page
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