Should Your Small Business Use a Hosted Software Application?

With the widespread use of AJAX and Web 2.0 technologies, hosted applications are making a comeback. It's now possible to find a hosted application for accounting, enterprise resource planning, human resources, customer relationship management and more. While hosted applications can certainly be a good fit for a number of companies, they're not a one-size fits all solution. Here's some things to consider before deciding to go with a hosted application.

What's the long-term cost? The primary reason companies adopt hosted solutions is cost savings. Purchasing software can be expensive. In addition, most companies find that they also need to purchase hardware to support it and hire personnel, usually consultants, to install, configure and maintain it. Normally, this adds up to quite an up front cost. Many companies look at the relatively low monthly cost for a hosted application and decide that its cheaper. It's rare, however, that the case is that simple. For example, is your company growing? How will adding additional staff affect the monthly costs for your hosted application? Most hosted applications have a fee based on a per user model. If you purchased a system outright, how many months of a hosted applications fee does that amount too? If it's less then 5 years, purchasing may make more sense. If the upfront cost is prohibitive, many leases programs now allow software and consulting services to be leased.

Who owns your data? This might seem like a no-brainer but you'd be surprised by the horror stories about companies that couldn't access their data. Read the contract carefully. Can you get your data if there's a billing dispute? When the contract ends, is there a grace period for retrieving your data? What happens if the company hosting the application goes under? Are their provisions for you to download backups of your data? And what formats can you get your data in? This last one is especially important. You want to find a format that's going to be easy to import to another application if the hosted one doesn't work out or goes away.

What formats can the hosted application convert? If you've been using another solution for a while, how you'll get you data into the hosted application will be almost as important as how you get it out. No one wants to retype contacts into a new application. Make sure your new hosted application can import the format your data is currently in or that your current application can export to a format usable by the new application. Without this type of feature, you'll waste a lot of valuable time rekeying data. Wasted time makes a hosted application more costly.

How reliable is the application and the company providing it? Do you really want to trust your mission critical data to a new company with an unproven track record? Do some research into the company hosting your application. Ask for references, and then take the time to call them and verify that they're happy. Ask for a live demo of the app or a free month or make sure there's a period in the beginning that you can cancel your contract if the application doesn't meet your needs. Pay attention to sluggish performance or outages and review any SLAs carefully.

Can the application be customized to fit your business? Most hosted applications have some limited customization. Make sure that your business processes can fit into the workflows defined in the application or that you can customize the application enough to make a close fit. Unfortunately, due to the cost of highly custom solutions, most small businesses are forced to make their business processes fit with the software they're using instead of the other way around. But if you have existing processes based on a previous application, make sure the transition to the new one isn't going to create too much pain.

How reliable is your internet connection? I can't stress this one enough. I've seen several clients decide to use hosted applications on internet connections that were unstable. How much disruption will an outage in your internet connection create for your business? How well does the application tolerate intermittent outages, latency or slow connections? The idea is to be more productive with your technology. And while we're on the topic of stable connections, make sure you have a business process and policy for doing work when the application isn't available. You still need to capture data and then have a procedure for getting it into the application when it comes back up.

Many small businesses successfully use hosted applications to run backoffice systems. However, there are many that only see the upfront cost savings and make a decision to use a hosted application without considering the bigger picture. By considering the points above, you can base your decision on a hosted application on a strong business case that considers all the factors involved.