Feature Article - Buyer Beware
Several of our clients have been approached by a company which offers an amazing array of pre-built, one-size fits all hosted applications that will make your company’s website successful almost over night. If you think it sounds too good to be true, you are not alone. With few exceptions, hosted applications have failed to live up to their original dot.com hype. In this article, we touch on the most significant problems with the hosted application business model.
The Business Model
Hosted applications are applications that you essentially rent and do not own.
The Big Risks
Perhaps the biggest risk of hosted applications is the lack of ownership which leads to several concerns, including:
- Once a company becomes too dependent on the hosted application, they can essentially be held hostage by the service provider. The high switching costs associated with both down time and money tend to make it prohibitive to move to another application. As a result, the service provider can increase licensing fees and provide poor service with little concern of losing existing customers.
- Of even greater concern, is what happens if the service provider goes out of business. The client is essentially left with nothing and any online applications become immediately unavailable for use. This predicament, along with high employee stress, can result in a loss of customers and business partners.
Total Cost of Ownership
While the initial cost of a hosted application may seem reasonable, the total cost of ownership over the period of a couple years can become quite costly. It is also very important to understand exactly what you are getting for the annual maintenance and licensing fees being charge by the service provider. More than likely, there will be many additional expenses incurred to maintain your application that will not be covered in the maintenance contract. Examples include: data entry or restructuring of data to fit the pre-built applications data model as well as application customization.
User Adoption
Hosted applications tend to be built around a very generic application model designed to service a diverse group of industries. The problem is that every company has its own unique way of doing business. Forcing customers and employees to change the way they carry out their business activities in order to fit the processes of generic applications will lead to a very low adoption rate and ultimately a very high failure rate.
Lack of Planning
A successful website is less about the technology used and more about the development of a solid business plan that is well thought out and employs solid strategies and tactics. Hosted applications tend to lack the flexibility required to effectively integrate the unique business requirements of an individual company. Also, since you can turn your application on almost immediately, companies often overlook the planning and training stage required to maximize their chances of success. The lesson here is that your online business plan, not the software, should dictate the processes, features and functionality of your website applications.
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