SMB Focus: Today's breed of hosted applications can offer smaller companies fixed costs, reduced complexity and guaranteed compliance. Arif Mohamed reports
For many organisations, there may be business and technology projects that would be better served if somebody outside the company ran them.
Such activities may include individual operations such as an online payment mechanism or a business intelligence project.
At the other end of the scale, an organisation may decide to have a core business application, such as Oracle or SAP, hosted with a third-party service provider, so that it can cut its IT costs and transfer the burden of IT management.
Application hosting has several names - including applications on demand and software as a service - but it essentially means that a professional service provider is in charge of the running and maintenance of the user's applications. The provider generally makes them available to the user via an internet connection and web browser.
Strictly speaking, the concept of having applications available on demand over the internet is not new. However, the new generation of hosted application services is far more sophisticated than previous incarnations.
David Bradshaw, principal software analyst at Ovum, says software as a service for today's hosted enterprise applications differs from traditional software services. Traditional hosted applications are essentially standard enterprise applications that have been implemented and customised in the usual way, then hosted remotely, rather than housed in a company's own datacentre.
"The financial arrangements vary a lot, and are open to negotiation. So they are individualised but still rather expensive," he says.
"In contrast, software as a service provides an intrinsically hosted solution that has been optimised for economies of scope and scale - economies that are passed on to the customer.
"Unlike traditional hosting, the code cannot be customised. This is a good thing - most application suppliers are trying to stop code customisation anyway, as it creates massive support and upgrade problems for them. Instead, the software is highly configurable," says Bradshaw.
"Some people say software as a service is not scalable, however, Salesforce.com has half a million users. There is no reason why other hosted application players should not have the same, in time. How many enterprise systems have anything like that many users?"
Many IT managers will have doubts about the viability of hosted applications, but Bradshaw says that on the whole, a lot of the supposed drawbacks are not relevant, and are "invented by rival suppliers as fear, uncertainty, doubt to try and hold onto their market position against the threat from software as a service until they get their own act together."
For hosted applications, the data is normally located in the main datacentre of the supplier, which tends to be a large web-hosting environment, and this will contain a secure, high performance IT system, which will have to satisfy the most demanding users.
Steve Garnett is general manager EMEA at Salesforce.com, one of the best known hosted application service providers for customer relationship management (CRM) software.
He says the firm offers users several hosted services for key business applications, which comprise CRM, salesforce automation, marketing automation and customer service.
Through its App Exchange platform, users can create an additional range of applications that can be available on demand, and there are now more than 300 of these, covering project management and recruitment, and industry-specific financial services.
"On-demand is the future. We are seeing customers with two or three users using on-demand applications, and at the high end some of the largest organisations like Merrill Lynch, ABN Amro, Cisco and Nortel. You do not have to own your own software, or manage it and run it," says Garnett.
In the past, companies have had to build their IT systems because they had no decent alternative. But now, with the web, they are able to pay for computing as they would their utilities or sanitation, says Garnett. "If the internet was not here we could not operate."
From the user's perspective, they do not need a great deal of technical expertise to use hosted application services, according to Teresa Jones, senior research analyst at Butler Group.
"Today's hosted applications tend to be accessed using a browser, such as Internet Explorer, though some service providers offer alternatives. As such, they may differ from older hosted e-business solutions that may well have used a 'thick' client application on the user's desktop, even though the application server and database were hosted by the service provider," she says.
"Although advances have been made, notably with what are called rich internet applications using Ajax and similar technology, the user experience can still be a little slower than with a desktop application. The benefits are that it can probably be accessed wherever the user is."
Jones adds that the benefits of a hosted application include that it is easy to set up, more intuitive to learn than a thick-client system, and offers a pay-per-user-per-month fee, rather than up-front licence and services fees. The user can start small and scale up in a cost-effective manner with most hosted application service providers.
However, Jones says that the main issue with hosted applications is network bandwidth. "You need to have good bandwidth to access these services. Dial-up is probably painful, so the salesperson accessing it over dial-up from a hotel room, or wireless from the road, could be unhappy.
"Even though we now have good broadband coverage in the UK there are still significant areas that do not have it, and there is no guarantee of quality of service from your ISP unless you pay extra for it - this might well be worth doing."
The main consideration for IT managers embarking on a software as a service strategy is to carry out their due diligence, with a side-by-side comparison of what processes they would be willing to relinquish control of to a third party, says Derek Kay, director of e-business at IBM's Hosting Global Technology Services UK division.
"Then go out and test the market," he says, ensuring that you check the service supplier's security meets audited standards, and that the cost, track record, and size of the customer base is convincing. Also check that the supplier has international support, if it is required.
"It is simplicity itself to extend an IT system to ours. All of the clever tech stuff is locked in a room with IBM, and you just have to bridge your network to ours with an internet connection," says Kay.
How technical the user wants to be depends on the individual, he says. "Some CIOs and IT directors would only feel comfortable if they understand the technology, as some have been stung before. We love showing it off and they can get down to any level of detail. Others may just want to look at the balance sheet."
IT managers should be aware that there are some applications that do not lend themselves to the hosted application treatment, and these tend to be where the processing needs to be closer to the user because the software uses a lot of data. Computer aided design (Cad) and computer aided manufacturing (Cam) programs, and applications that are highly graphics and video intensive come under this category.
Overall, Kay recommends that users focus on the cost, complexity and compliance arguments of software as a service, as it can offer fixed monthly costs, reduced complexity, and guaranteed compliance which suppliers become responsible for maintaining.
Hosted application services are becoming more technically sophisticated behind the scenes, says Kay. But he added "more and more customers are getting less and less interested in behind the scenes - this almost implies that business users put more trust in the fundamentals of IT, and can see where IT has an impact."
There is a move to a much more service oriented approach, with much more open systems componentry.
According to Bradshaw, the future of on-demand applications includes much broader market penetration for the services. "In the UK we expect about 30% of business applications software sales to be software as a service by 2010," says Bradshaw.
There will also be a blurring of the boundaries between software as a service and business services, he says. "Experian, for example, is arguably a larger player in hosted applications than Salesforce.com - it all depends where you draw the line between software and business services.
"We expect to see a lot more companies using hosted applications - either their own, or someone else's - and doing this in an evolutionary way."
Bradshaw adds "We expect some suppliers to offer software as a service in the same way Google offers the enterprise search utility - in a box that the user just switches on and uses, but the supplier manages remotely.
Case study: Skyworks gains agility with on-demand apps
Skyworks is a global provider of radio frequency components and mobile communications systems, and operates in an industry where the marketplace can change dramatically, and products are complex, with short lifecycles.
By adopting IBM's Applications on Demand and application management services, Skyworks found that it could cope with the fast-moving industry conditions.
The company was formed in 2002 through the merger of Alpha Industries and Conexant Systems' wireless communications business. Skyworks is headquartered in the US, but has 4,000 employees worldwide, with 60% located outside the US, in Europe, Asia Pacific and Mexico.
Skyworks chose Corio, now part of IBM Global Services, to manage a number of systems which involved the daily running, tuning, administration and maintenance of Skyworks' SAP R/3 enterprise suite, SAP Basis middleware, and Lotus Notes and Domino communications platforms.
The agreement allowed Corio to handle peaks in demand for applications and ensure that the applications ran smoothly around the clock. In addition, it was essential for the system to be supported globally, as Skyworks has major offices around the world.
Peter Sebilian, director of IT infrastructure at Skyworks, said, "A key factor in making this change was the need for 24x7 support for our global operations. To develop that in-house, in our dynamic environment, is unrealistic."
Sebilian added that by moving to a hosted environment, the firm managed to cut its overall IT expenditure by 18%.
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