Hosted apps revisited

Hosted applications in the guise of payroll bureaus are as old as Holden Kingswoods and hundreds of more modern models, in the guise of application service providers (ASPs), crashed and crunched with the dotcom flop. But some of the survivors, such as UpShot and SalesForce.com have been making headway in the US mid-market, albeit having only minuscule revenues by comparison with the overall software market.

The action is not all in the mid-market. Reportedly, flying behemoth British Airways integrated a hosted customer self-service application with its customer database and was “surprised” to find that a smallish ASP could support its international Web presence.

CIOs, CFOs and CEOs looking for cost savings may be disappointed as, according to Forrester Research, the costs of a monthly fee for an ASP service can catch up with the costs of buying and deploying the software after about four years. But there’s also staff cost savings to consider, as with hosted applications (rather than client/server deployments) CIOs need fewer in-house techies to maintain operations.

However, if the same executives are looking for relatively rapid deployment and absence of upfront costs they may be convinced to rent instead of buy. Concerns about security of corporate data, the ability to customise, scale and integrate hosted apps are being smoothed over, but I know many still find them a concern.

It’s no secret that many business applications vendors are hurting as they are not selling too many new licences, and the cost of sale for those new licences makes them not so profitable in any case. The software vendors’ gravy comes from the ongoing licensing and maintenance fees (some call this milking the customers, but vendors argue it’s the only way for them to be profitable and have the funds to invest in R&D). As a possibly more proftible model (by being easier to deliver) many have moved to offer hosted version of their wares. Just last month, on the heels of its new Siebel CRM OnDemand joint offering with IBM, Siebel has decided to buy UpShot, described as a “market leading” hosted CRM vendor.

Hosted apps won’t match the hype of three years ago but this time ‘round they’re an option worth serious thought.