In the beginning, software came in a box. It was installed, it ran, you bought upgrades, and it was good. The methods by which software is delivered have evolved since then, from downloadable to externally hosted.
In an effort to broaden their appeal to customers of all sizes, an increasing number of software developers that specialize in collaboration and document and content management applications are making their software available both as shrink-wrapped products and hosted versions.
This is potentially good news for small businesses, which can use externally hosted applications to provide the same functionality that enterprises get from packaged software, while saving on the costs of technical know-how and infrastructure. Larger businesses, meanwhile, often need the security of an internally hosted application.
The concept of application service providers (or ASPs) began shortly after the Internet when pioneers such as USinternetworking, Inc. began to host and manage enterprise applications such as PeopleSoft and Siebel for clients. Since then, the idea of hosted software has evolved to include Internet-based business service providers (or IBSPs), which provide Net-native applications and services designed to live entirely online. Enterprise software vendors such as Oracle and PeopleSoft have also taken advantage of the model, known alternately as ASP or software as a service depending on how different organizations define it.
According to IDC, the market for what it calls software as a service was more than $2.3 billion worldwide in 2002, and is expected to hit $8.0 billion in 2007, thanks to its promises of low costs and rapid deployment. Another $12 billion was spent on application management in 2002, IDC found.
Among the content management vendors that offer fully hosted solutions are Atomz and CrownPeak. Enterprise collaboration software developer SiteScape, which has some of the biggest names in worldwide business on its client roster, offers an affordable, hosted version of its product called WebWorkZone. Even entire intranets can be externally hosted through solutions like Intranets.com (to name just one).
Los Angeles-based KnowledgeBase Solutions initially offered a hosted product that provided document management for customer service organizations. As the company and its product matured, however, KnowledgeBase found that potential clients in certain sectors could not have data hosted externally because of security regulations. As a result, KnowledgeBase now offers a shrink-wrapped Professional Edition of its product, as well as an Enterprise Edition for its largest clients, while retaining its original hosted solution.
Updating With Ease
KnowledgeBase isn’t the only developer that has had to be flexible with its plans for hosted software. Ramius Corp., based in Ottawa, developed CommunityZero, a Java-based enterprise online community that offers messaging, file sharing, calendars, and discussions as a hosted service. CommunityZero has more than 1.5 million registered users at customers that include Nortel, Honeywell, and Bank of Canada. This month Ramius is releasing an out-of-the-box, licensed version of CommunityZero that is identical to its hosted version.
For both client and developer, one of the main advantages of hosted software is the ease with which updates can be completed. For the developer, everyone is on the same version of the software; for the client, updates are handled for you, along with patches and any other maintenance that might present itself.
Ramius president and CEO Alfred Jay said it was mainly security concerns that prevented his company from doing business with all aspects of its enterprise clients’ businesses.
“We, certainly, as providers, love the hosted model. But there was no way to address the concerns,” Jay said. “If it’s something where security of data is important, then it’s going to be an uphill battle.”
Ramius has also seen a lot of interest in what it calls its CommunityZero Appliance, which is essentially its Java-based enterprise software installed, configured, and tested on a server, delivered as a complete unit to the client for operation on its network.
This doesn’t mean hosted software’s days are numbered. Jay said hosted applications appeal to customers of all sizes.
“I do think the hosted side has a lot of potential and I expect strong growth going forward,” he said. “Overall, it would be fair to say that attraction among all segments is certainly growing.”
Jay also expects large software companies to increase their presence in the hosted side of software because of the reluctance to do business with newcomers. This has been a problem that has plagued ASPs from day one: the CIO’s nightmare of a hosted software provider going belly up in the night and taking all of the client’s data with it.
There are still risks involved with using an ASP, but they can be decreased, if not avoided entirely, by taking the right steps, according to Summit Strategies analyst Amy Levy.
“It’s still a huge concern,” Levy said of ASP consolidation. “In the last two or three months we’ve seen more consolidation than in the last couple of years, and there will be more.”
Levy recommends potential customers do their due diligence, check out ASPs’ data centers, and of course, include an escape clause in the contract.
Plenty of customers find the risks worth taking. According to IDC, 50% of companies are considering deploying a hosted solution. And while the hosted solution might save money, the increase in formerly hosted applications now available in a box might save some headaches. The choice is yours.