Before handing over your IT requirements to a host, you had better learn to play all your cards right.

		Contents Gaining traction Risking it all Picking your cards The key that fits Case study: WebCentral

It is Friday night and the horror stories of the week we have all just endured have begun. Tales of piled-up client cases to churn through, endless hours of work, and those from people anxious to find new work can be heard from every corner of the crowded Sydney inner-city barbecue. But there is one woman's voice that raises the mark, attracting all the attention with its almost-hysterical memories of the week -- yes, just one week -- she has just had to face.

It is 11am in Sydney and the prominent and very important hosted Web site for the mobile phone product this particular employee manages has a slight but embarrassing hitch. A pointer leading to "extra" mobile features, a selling point for this particular phone plan, brings up a dead link -- tear-your-hair-out material when you already have a massive workload and hefty company demands to deal with, not to mention the cost of lost sales.

It is 2am in Cape Town. A delegate from a call centre for a hosted solution provider picks up the phone. He is told of the manager's problem with their popular Web site and the urgency required in fixing this -- this is not the first time a staffer at the host has had such a call. His response is the same as that to numerous other calls he has received to fix problems with the hosted Web site -- the person with the skills to do this is sleeping and will not get around to it until they come back into work in the morning, Cape Town time.

One week on, a similar problem occurs. The now even more frustrated product manager places a call to the host in South Africa, only to be hung up on. As a last straw, the service level agreement (SLA) written up by previous staff members looking after this account is called upon with the hope of sorting this mess out contractually. Low-and-behold, the company is locked in for the next few years promising this product manager many more weeks like the ones just described.

Problems like this aside, this telecommunications company is actually in favour of hosting out its IT requirements to companies with the expertise to look after these vital areas of productivity. The problem for this company in particular lies mostly in a poor SLA, which lacks vision and includes way too much trust in the abilities of the provider.

Their situation is not a standalone case. Many companies have been lured by the promise of the Hosted Application Service Provider (ASP), operations with promising names such as "Hostopia" (we have no horror stories at Hostopia itself, we are simply pointing out the opportunistic name), some which offer toll-free technical support, money-back guarantees, and secure and reliable services.

"The market is $6.5 million for [hosted] CRM alone in Australia." -- Foad Fadaghi, Frost and Sullivan

ASPs are just one form of a hosted application. In this model, companies will often own their own software licence, Web site, and so on, but will find another company to run them. The other hosted application model will see a company simply pay for a host to provide them with the whole packaged solution, including software and service -- be it CRM, e-mail, or a number of other different offerings -- and host it with payments made for that service alone, instead of any licencing cost.

Some ASP offerings provide an excellent service, making them a worthwhile business choice. Others simply burden business with a haphazard attitude to looking after clients, poor tailoring of abilities, or poor technical support.

In the 30 or so that years hosted solutions have been around, success has been hit and miss. But now hosted applications seem to be getting a good grasp in industries big and small as companies see the benefit of ditching licensing fees in favour of a more transparent monthly cost and the promise of expertise in fields that may not be their forte.

		Contents Introduction Gaining traction Risking it all Picking your cards The key that fits Case study: WebCentral

Gaining traction
Frost & Sullivan analyst Foad Fadaghi has been studying hosted applications in the Australian market.

He expects a considerable rise in interest in the model, and expects this to grow further. "We believe the Australian hosted CRM market (software companies providing a hosted model of the software) was worth AU$6.5 million in 2004, and considering how long this model has been around, this is quite exceptional growth," Fodaghi says.

"Outsourcing one application is not going to do much good for a company." -- Kristian Steenstrup, Gartner

Fadaghi says it is the CRM arena that is attracting the biggest interest at the moment, as well as hosted exchange servers, and other e-mail applications. "Hosted e-mail servers are gaining popularity," he says. "CRM is also growing quite strongly -- it has been around since about the year 2000, but it has really only been in the last year that we have started seeing a lot of adoption."

"You find it is those businesses that are less concerned about security issues, require the different pricing options... and have less in-house skills needed to manage certain applications that will outsource to a third party."

But Gartner analyst Kristian Steenstrup says that he believes those taking up the hosting of licensed products are part of a small minority in Australia, despite the attention this offering has been receiving. He says the Australian reception to hosted applications as a whole, despite their rise, has been luke-warm.

"There are plenty of companies that are not predisposed to hosted, or some form of hosting or outsourcing responsibilities -- they want to retain the ownership of that process," he says.

"Outsourcing one application is probably not going to do much good for a company. It is when you outsource virtually everything that you see the decrease in IT cost.

For small businesses with limited capabilities it can be a differentiating factor though, especially where complex requirements are hosted out. But you have to remember that, in the end, hosting is just another way of buying software that comes with a whole new range of concerns."

And the big market players have started to take this onboard. Siebel and Netsuite are hosting some of their software products with Telstra, and Optus has launched its own Online Office suite.

		Contents Introduction Gaining traction Risking it all Picking your cards The key that fits Case study: WebCentral

Risking it all
How secure will my information be? Will staff be able to access data at all times? Will I experience any downtime? And how easily will it be to integrate my hosted solution with key legacy systems and other IT investments I already have, or want to maintain in-house? These are the questions Frost & Sullivan's Fadaghi says he hears time and time.

These fears, teamed with a lack of well-developed industry-specific solutions, and the often exorbitant long-term cost, and inexperience with SLAs, have made it easy for make companies to push the hosted proposal to the side.

Hosted solutions provider Micronet Systems Australia specialises in the hosting of their own inventory management and financial products. Director Drew Arthur says even as a host, his company has experienced the effects of a poor hosted solution. "We had two unsuitable hosted partners looking after our financial and point-of-sales applications, both critical to our business, who could not get their head around the complexity of our reliance on them as a hosting partner," Arthur says.

"It was not until the third partnership that we found someone who understood that if you lose data it can cost you, or if you suffer downtime it can be even worse. Finding this perfect marriage really was a matter of trial and error, but we eventually worked out a perfect agreement."

Arthur says security and privacy are at the top of Micronet customers' concerns. Most of these fears, he says, have come from negative experiences with previous hosts. "Some data-centres just don't understand the importance of having available data. You must make sure that it is clearly stated in your SLA that you want a certain level of uptime. There are some bad perpetrators out there but there are also plenty of hosts who do the right thing -- it is not hard to achieve," he says.

Salesforce.com vice president Doug Farber says this is the way the hosted industry tends to work in general. Most security concerns tend to be emotional, political, and only occasionally technical, he says. "But they are very real. We had to spend well more than AU$150 million in infrastructure security [to win the confidence of some clients]," Farber says. "We have to do security audits with the banks and financial institutions that use us to prove we are secure and private. The problem is 95 percent of the businesses in the world using hosted solutions can't afford that extra monitoring. That is why you have a testimonial base, so if you can't afford the monitoring, then you can hear from others how well a host's security works."

"We encourage people to do as many reference calls as they can before taking up a hosted solution for this very reason. If a vendor cannot come up with three, four, or five viable companies that are using them for the areas you want to host, then you should think twice about going on board with them. There are a lot of claims about what people can and can't do out there and buyers have to be dubious and only settle when they have a degree of comfort and assurance."

		Contents Introduction Gaining traction Risking it all Picking your cards The key that fits Case study: WebCentral

Picking your cards
Web hosting company Hostworks looks after the sites of high-profile companies such as ninemsn, Ticketek and Web-based accomodation finder whatif.com. Hostworks managing director Marty Gauvin says reputation can say a lot about a host, but when deciding on a hosted solution there are a number of other areas to take into account. He says it is important to have clear knowledge of the layout of your company and its IT commitments, as well as where staff skills lie and forecasted future growth, downsizing or structual change.

"There are a range of environments where the ASP model is perfect -- branches, if you have geographic spread, or if you are working with a highly variable workforce," Gauvin says. "ASP is also good where you have a company that wants to control costs distributed across products, or different departments. But for some people, buying a licence is much better if the one product will be used over a long period of time -- they can simply host this out if they don't have the expertise to run it."

Salesforce's Farber says the best way to ensure you are buying the right product, and implementing it successfully within your businesses' processes, is to trial the rollout. "You need to have several weeks set aside to do this, and you may need the help of a consultant. Don't assume when building an application on 1 February that this will still fit your business come August -- you have to build in flexibility, then you have to look at testing and planning for rollout," he says.

But before even doing this, you must be absolutely sure that your choice of provision completely fills all your business requirements. Siebel vice president for sales Will Bosma says you should always get your provider to show how the solution will meet its feature functions and run through the strategies for integration that will be needed.

"People tend to focus on performance and security when implementing a hosted solution, but really, what you need is a sensible solution that allows, in two years time when you need to go down the upgrade path, for you to easily change, Bosma says.

"You need that upgrade path mapped so you can logically move to a hosted solution or change over methods of trade or budgeting. In the long run, you may find you can do a lot of things onsite and buy a licensed product. You must look at these things with a three- to five-year horizon," Bosma says.

		Contents Introduction Gaining traction Risking it all Picking your cards The key that fits Case study: WebCentral

The key that fits
Bosma may have some good words of wisdom, but actually putting them into practice can be a lot harder than you may think -- especially with so many pre-packaged options out there at both high and others at low cost.

But Hostworks' Gauvin says it should be just like getting your clothes fitted by a tailor -- complex businesses must pay more to have a solution that is the right fit.

This means SLAs must be right, relationships and communication channels effective, and the link between you and your provider hardy enough to give the link the capacity required to carry out key chores, and if it takes a consultant to achieve all this, then you simply must pay one.

Bosma says for smaller businesses, a more pigeon-holed hosted application, where everything is very locked in, can work perfectly. "Some people may use hosted applications for simple chores such as HR. In these cases it can work fine, especially for SMEs with limited IT resources or no capital budget for acquiring software," Bosma says.

But as Gartner's Steenstrup is keen to point out, companies must be sure that any new application being introduced to the business will integrate well with all existing systems. In CRM this could be between your sales point and production line. "You need to be careful how you are going to integrate your fulfilment cycle (such as the processes between point-of-sale and purchase pick-up)," Steenstrup says.

"The other thing you may want to make sure of, when choosing a host, is that they are in a geographically suitable location. This means looking at what level of support you have, especially if 24-hour support is sold as a feature, and if your guaranteed year-round levels of access." Just as our manager at the start of the story was fast to find out, a service provider on the other side of the world may allow its key staff, the ones that can make serious changes, sleep during your work hours.

		Contents Introduction Gaining traction Risking it all Picking your cards The key that fits Case study: WebCentral

Checking off your bets
WebCentral started up as a small Web hosting company in 1997, offering set up, monitoring and Web site maintenance. Now it hosts e-mail, Web and content fitlering and domain-name management for Education Queensland and the state schools under it.

WebCentral CEO Andrew Spicer says WebCentral has seen the market shift considerably from its small business base to a point where AU$20 million-contracts are not unheard of. He says he believes the confidence won over in the small business market has lead to larger companies considering ASPs.

"We are now seeing realestate.coms, banks, travel companies and sporting institutions all taking up the Web site challenge," he says.

"As a result, the whole industry is growing, and security systems are being put in place. Providers are realising the importance of having 99.99 percent up-time for information, and ensuring information is kept secure, and many people are careful not to sign contracts with a company until they have checked around."

Spicer says as the market has grown, the "outlaws" have started to diminish. "Suppliers are becoming a lot more reputable and disasters are starting to reduce but there is still a lot of fear out there," he says.

"As more and more people do their homework and check out these comapnies properly before signing with them, the disaster rate will become even smaller.

This article was first published in Technology & Business magazine.
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