The 1990s saw a big investment in application service providers (ASPs)—Internet-based companies that were going to provide businesses with the applications they needed. Although the idea was sound, ASPs didn't take off and many providers bit the dust.

However, the hosted-application market didn't disappear completely, and in the years since there has been a slow but definite trend toward a general acceptance of what is now more commonly known as the remotely hosted–application model. Both client- and server-side applications are available to businesses, and there are strong arguments for implementing some hosted applications in almost every environment.

Hosted applications of all sorts have one big advantage: fixed monthly costs. You can accurately forecast how much you'll spend on hosted applications because you know how much you're paying per user. If you're self-hosting, you always need a cushion to deal with the unexpected problems that crop up even in the best IT organizations. Let's take a look at the different types of remotely hosted applications and the things you need to consider before giving your business to a hosted-application provider.

Web Sites
Web sites are the most commonly hosted applications. Only very large businesses host their own Web sites internally, and there are many good reasons not to do so, especially if the business has high-traffic Web sites. It's very expensive to build and manage the infrastructure necessary for a high-traffic Web site, and the ISPs that offer Web hosting services are equipped to do just that. If your line of business (LOB) requires Web sites to be available to the public at all times, it makes sense to host those sites through a provider that offers the necessary hardware, software, and networking redundancy. I'm not saying you can't grow your business with the intent to bring Web hosting in house, but the investment necessary for the infrastructure can usually be better spent in some other aspect of your business.

If you decide to host your LOB Web sites offsite, you must have a reliable Internet connection so that your users and customers can connect to the hosted applications. If you look at the vast majority of ISPs used by small-to-midsized businesses (SMBs), you won't find many service level agreements (SLAs). For example, if you read the fine print on business Internet connectivity TV commercials, you'll notice it states that connectivity and performance aren't guaranteed. SLAs are available, but guaranteed connections are costly, and you must factor that expense into the overall price/value matrix that you use to determine whether remotely hosted Web sites make sense for your business.

Email
The office-automation application that's most commonly hosted remotely is email. Hosted email makes a lot of economic sense and ranges from simple SMTP/POP3 email to a full-blown hosted Microsoft Exchange server implementation. Keeping email applications running has always been somewhat complex, especially now that there's a need to scan and filter email to cut down on junk mail, spam, and email-borne malware.

Many SMBs simply use the free email provided by the ISP that hosts their Web sites. Even inexpensive hosting packages let businesses set up hundreds of individual email accounts, usually using SMTP/POP3. However, such packages typically don't include managed email, email backup, or integration of email with other applications. Some basic spam prevention might be included, but it's rarely accurate or reliable and usually filters only inbound traffic. And although many ISPs support standard email clients and provide a Web interface to their free email accounts, the Web interface is typically very basic, lacking filtering and mail management tools.

The next step up from free ISP-provided email accounts is hosted Exchange Server email. In this case, businesses use a remotely hosted and managed Exchange server and have access to all the capabilities of that server. Users have full use of the Microsoft Office Outlook email client (including scheduling, calendaring, and notes) and get mail-specific functionality, such as Outlook Web Access and Outlook Mobile Access. The responsibility for maintaining the Exchange server falls on a service provider that specializes in maintaining the Exchange environment. Hosted-Exchange providers can provide these services at a reasonable price because they spread operational costs across multiple customers. At this level, customers don't get their own dedicated Exchange server, but share the resources of an environment with other customers.

Most providers offer a step up from this basic service to what's called a managed server—an Exchange server that's dedicated to a specific customer. Your business gets its own server, which is located in the provider's data center. Many providers offer businesses the opportunity to co-manage the server with the provider, which lets businesses run their own custom applications on Exchange while taking advantage of the security and management services offered by the remote provider.

Outsourcing email can significantly reduce costs for small organizations. Hosted-Exchange providers claim that organizations with fewer than 100 mailboxes will benefit from their services. These claims are based strictly on the cost of running and maintaining Exchange, which can be determined fairly accurately.

SharePoint
Many hosted-Exchange providers can also host SharePoint for their managed-server and hosted-server customers. The provider can integrate Exchange and SharePoint to give customers the ability to build a hosted collaborative workgroup environment. Most Exchange hosting providers add an incremental charge for SharePoint hosting, based on the number of users and the amount of storage the business customer wants to dedicate to users.

Hosted email and SharePoint services make a compelling business case to many businesses. These services let even small businesses fully utilize email and related services without requiring an up-front investment in hardware and software or imposing significant ongoing costs for maintenance and support.

Business Applications
Another level of remotely hosted services consists of complex applications such as Oracle and Microsoft SQL Server and the enterprise-class applications that run on top of them, such as those from PeopleSoft, SAP, and Siebel, and especially customer relationship management (CRM) applications. End-to-end solutions are available that provide the hardware and software to run these applications, as well as the specialized expertise necessary to make them work, which is often the biggest stumbling block to the adoption of such complex technologies. Although the initial purchase price can be significant, the ongoing investment in the skills needed to get the most value from these applications eventually dwarfs the startup cost.

In this environment, the biggest advantage that hosted-application providers can give customers is the expertise necessary for the exceedingly complex applications involved. Businesses that use such services can realize cost reductions of as much as 50 percent compared with the cost of an in-house implementation. It makes far more sense to use a hosted service than it does to make the up-front investment in the infrastructure needed to support a pilot project or even to simply evaluate a technology.

A variety of hosted CRM applications is available for businesses. Major application vendors, such as IBM, offer hosted versions of very high-end database-based CRM products. The biggest impact on CRM has come from hosted providers such as salesforce.com, which offers CRM solutions appropriate for small businesses (fewer than five users) as well as businesses with thousands of users. CRM is an appropriate fit for the hosted-application business because a sales force needs to be able to access its data anywhere. A Web-hosted CRM application lets your sales staff access its information wherever an Internet connection is available. Although the same can be said of almost any hosted application, accessibility is a major business advantage for a CRM solution.

Deciding to use hosted enterprise-class applications requires extensive research. Although the low startup costs and the ongoing savings are significant, there are few, if any, standard decision models you can use to determine whether a hosted CRM or other enterprise-class application is a good choice for your business.

Client Applications
Hosted client applications make standard office automation tools, such as word processing and spreadsheets, available through a Web site. The most commonly hosted client application is Microsoft Office. In hosted client applications, you're effectively running a hosted Citrix or Windows Terminal Services environment. The client uses RDP or ICA to connect to the hosting server from his or her local computer. Because hosted client applications are accessible from any Internet-enabled location, they're useful for businesses that are geographically widespread. Hosted client applications let businesses ensure the same working environment for all users without having to worry about configuration, management, or user support.

However, hosted client applications require an Internet connection. Users who aren't connected can't do any work because they don't have a local application to use when they're offline. You also need to maintain sufficient network bandwidth to assure acceptable user response times in periods of peak use. The metric for determining the value of a remotely hosted client environment isn't as clear as it is for many other hosted applications. Google's free Web-based word processor, spreadsheet, and calendaring software is an example of a fully hosted end-user application environment.

Coming to a Decision
Making the decision to use hosted applications requires you to carefully evaluate the costs involved as well as the advantages and disadvantages for your business. Even the apparently simple choices need to be analyzed based on what your business plans to do with the service. For example, if basic email services are all that your business requires, the choice of hosting providers is broad, whereas the choice of vendor and the services available becomes more critical if you plan to build business-critical collaborative environments. You're likely to find that in most cases a combination of hosted services and internally supported applications is the proper mix for your environment.

HOSTED APPLICATIONS CHECKLIST
Are remotely hosted applications right for your business? Answering these questions will help you decide.

Step 1: Analyze Business Needs to Determine Which Applications Are Suitable for Remote Hosting

  • Is your business an SMB that needs to support a high-traffic, high-availability Web site?
  • Do you need to provide a collaborative workgroup environment for employees?
  • Do you use complex enterprise-class applications such as CRM?
  • Do you want to provide a standard working environment for a group of dispersed users?

Step 2: Develop a price/Value Matrix for Suitable Applications

  • How many users will use each application?
  • At what point does the hosted application become cost effective?
  • Does your business's growth path call for additional hosting services or for moving the application in house?

Step 3: Determine How Hosted Applications Will Impact Workflow

  • Does access from any Internet-enabled location present a problem?
  • What applications must be kept onsite?

Step 4: evaluate SLAs

  • What level of service is required for each application?
  • What would application downtime cost your business?
  • What are the available backup and disaster recovery options?

Step 5: Don't Forget About Your Internet Connection

  • Does your SLA guarantee acceptable connectivity and performance? Hosted applications are useless if your users can't reach them or they don't provide the required throughput. If your application provider is different from your ISP, you'll also need to have an SLA with your ISP.

Step 6: Document and Diagram Your Business process and Workflow

  • Do you and your application provider understand and agree on who is responsible for hosted-application support, management, maintenance, and security?