The Host with the Mostest

The network holds the key to the future success of hosted solutions. Mark Vernon explains why

The network holds the key to the future success of hosted solutions. Mark Vernon explains why

Clearing away the clutter to focus on core business has never been easier than in the networked age. Outsourcing itself is an old idea: tasks that sapped the energies of the organisation, from inventory to invoicing, could be pushed out of the door to be fretted over by someone else. But the network is a new enabler. It adds to outsourcing hosted and managed services. To put it another way, the Web, in theory, completes a virtuous circle by making online outsourcing both conceptually desirable and technically viable. It adds a third element to the traditional drivers of cost and competency, that of connectivity. 'Plug and play' is now a virtual reality for firms looking for help from strategic partners.

With e-business time-to-market is a critical success factor for players as diverse as banks and grocery stores. Network connectivity brings outsourcing up to this speed. Application service providers and various other types of services enable systems and applications to be deployed remotely and brought online with little more than the push of a button. "Our research shows that we can save our customers up to 62% in long-term costs by taking advantage of co-location rather than using own-managed facilities," says Guy Willner, CEO of IXEurope. "We can fulfil requirements from IT and physical space, to personnel and facilities management within a couple of days."

Outsourcing is thereby lifted from being a plumbing issue to one that can introduce real strategic advantage. But with this focus come anxieties too. Technically, delivery on service level agreements is one. Culturally, deeper trust relationships with partners is another.

The fundamental attraction of outsourcing, in any of its guises, is to control costs. The problem has been that though clearly strategic, IT is still frequently treated, at least in finance departments, as an unallocated cost. Hosting therefore provides a way of running certain IT functions as a fixed cost. Other benefits accrue. Implementing and managing computer systems requires specialist knowledge, not only of networks in general but products in particular. An outsourcing relationship provides the firm with access to the expertise that it requires without having the cost of developing those skills in-house.

"For example, there has been a considerable increase in IT infrastructure management outsourcing recently since e-business has made the availability of e-business applications and security issues of considerable importance to organisations," says John Willmott, managing director of analysts NelsonHall. "This is happening at both the total global outsourcing of the entire corporate IT infrastructure and also at the Web hosting level."

Another benefit concerns economies of scale. For many, even quite large organisations, their reliance on computers means that they have to carry substantial amounts of redundancy in case of system failure. And this is a serious concern: the estimated cost in Britain of Web server failure was £128m in 2000, and this is set to double to £254m this year, according to hostmark. A hosting partner is able to provide protective redundancy against these crashes on the basis that the chances of simultaneous failure of several clients is vanishingly small.

The latest wave in services carries benefits a stage further. As computers have automated more and more business functions, including treasury, human resources supply chain, fulfilment and even customer management, firms realise that these are not core competencies for themselves and so can be hosted remotely to a very large extent. For example, research from NelsonHall indicates that the proportion of organisations outsourcing e-business application development, maintenance and support activity will more than double during 2001, from 12% to 25% of organisations. By the end of 2002 that figure will have risen to 40%.

However, the research also shows that not all companies want outsourced functions to be hosted. Approximately 80% of organisations would prefer an application service that did not include complementary hosting services, although hosting services have much higher levels of acceptance in the US and the Nordic countries than this figure suggests. It is for this reason that various 'third ways' are also on offer, such as co-location hosting. "They range from leaving applications in-house, using partial outsourcing, utilising the ASP model to rent a new application and full outsourcing of the type practised by EDS," says Mike Lucas technology manager at Compuware. Ovum estimates that the European market for co-location, for example, could top $15bn by 2005.

So if the case is persuasive in theory, what should one look for in a partner in practice? The first requirement is, of course, proven technical expertise in the services being offered. But beyond that, the outsourcing decision should consider other issues too. An obvious one is flexibility. The outsourcing agreement should be driven by the business's needs and not the partner's abilities. On the other hand, the firm does not need to buy in more service than it requires. There is no point paying for 24x7 access if all that is needed is nine to five. A related issue is cost: customers should make sure they have visibility of all costs, ie that the cost of ownership is tied into the contract.

Security is a perennial concern, even more so perhaps in the case of hosting. A health insurance company, for example, would need a very high level of assurance that its data was protected and possibly even encrypted so that only authorised personnel could read it. co-location is one way around this problem. But this leads onto the cultural problems that hosting can present. One of the most significant is an inevitable loss of control because it tends to distance the IT function from corporate goals and aims. Another issue is that it turns out that hosting is in reality often not a quick fix since partners can take time to acclimatise to the internal workings of their client company.

All in all, outsourcing does not absolve the organisation of all responsibility for a business function and a mixture of common sense and insight will avoid disastrous relationships. So, for example, ISPs are likely to be good at hosting websites. Alternatively, co-location is good for organisations that have business-critical applications that must run no matter what, but do not want to lose control of the server running the applications. "Hosting is used by organisations that want to rent applications, as opposed to services, and is probably best used by companies that want a low-cost delivery," continues Maxine Holt at the Butler Group. It is also good for companies that want to retain full control over applications, and have delivery to multiple locations around the globe, for example, multinationals. "Taking this a step further, it depends on the industry that the customer organisation is in, as to which may be the best route for them. For example, companies in the healthcare sector in the US are using ASPs that specialise in that particular vertical sector.'

A final point is that all outsourcing decisions are temporary, because businesses change. "One analogy for this is changing gear in a car. When the conditions change you can change gear. If you turn into a dead end then you can use your reverse gear to exit and take another route," says Lucas. So don't forget the exit strategy too!

Checklist
Four areas should be considered when deciding on a hosting partner, according to Worldport.

Operations
  • Massive connectivity to internet backbone
  • Air-cooled data centre with three days of back-up power
  • 24x7 network management and on-site technicians
  • Nightly off-site back-up Security
  • No major failures in the past 6 months


Equipment
  • Choice of servers to fit application requirements
  • Spare capacity
  • Four-hour equipment maintenance contracts


Services
  • Reports on facility performance
  • Proactive trouble-shooting
  • Easy-to-use content updating process
  • Money-back guarantees
  • Documentation for disaster recovery


Focus
  • Focus on service provision
  • Focus on customer perspective


Spoilt for choice: 10 varieties of Hosting
  • Application management A service that provides on-site management of all the requirements associated with running software applications.
  • ASP An application service provider is a company that hosts software applications on its own servers and charges clients for access to these applications via the Internet or private networks.
  • Co-location hosting Web hosting whereby users outsource their hosting needs to a hosting company which stores, maintains, and monitors their site on servers owned by the user thereby allowing users to take advantage of their own hardware purchasing deals.
  • Dedicated hosting Web hosting whereby users outsource their hosting needs to a company that stores, maintains and monitors their site on servers owned by the hosting company.
  • Facilities management On-site management of all the requirements associated with running hardware.
  • ISP An Internet service provider is a business that allows companies to connect to the Internet by providing the interface to the Internet backbone.
  • ISV An independent software vendor is a company that develops or sells software but is not a business unit of a hardware or computer manufacturer.
  • Mirroring The duplication of websites which is then stored at a location closer to the edge of the network to increase the speed of transmission of data.
  • Neutral co-location A type of co-location whereby Web hosting companies provide an environment where content providers can select from an array of vendors offering various services.
  • Storage management The outsourcing of data storage whereby customers are connected to a managed data centre.


Source: Morgan Stanley Dean Witter, The Internet Hosting Report

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