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Buy or Rent? That Is The Question
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By Kim Link

Did you know there are increasingly diverse options for purchasing software for your business?
One of the newest: rent your software from an ASP, or application service provider. Never heard of an ASP? You're not alone. "Even though the idea is three years old, it's still an unfamiliar concept to most people," Meta Group analyst Dan Sholler said.

The new ASP-delivered model is a monthly rental program, and often you are charged on a per user basis. For many businesses, software rentals can save a bundle. For starters, you don't pay a pile of cash upfront for the licenses. Also, if you buy your own software, you either have to pay a consultant to install it or tie up an employee's time to handle that chore. With an ASP, all you need is Internet access.

Then there are the hidden costs of maintaining the applications -- which disappear if the ASP hosts the software for you. Plus, with purchased software, you have to do it all over again every few years as the software upgrades come along. With hosted software, upgrades are free.

Turn on a dime

And often the ASP that hosts the application can offer additional services, such as Web hosting, backup or 24/7 system coverage, on a sliding scale to fit the needs (and budget) of companies on an individual basis.

Another major advantage is the turn-on-a-dime flexibility you get with an ASP. As a business grows it can easily add new users and increase its capacity and bandwidth to keep pace with its changing performance demands. In the event the company struggles, scaling back is just as easy and there are no restructuring costs.

Some users shy away from ASPs because they fear the loss of control. After all, customer data sits on the off-site servers of the ASP, along with the software. What happens to that data if the ASP is swallowed up in a earthquake or goes out of business? And will customer data -- the lifeblood of any business -- be safe from the prying eyes of competitors?

ASPs have been addressing these fears with Service Level Agreements that cover everything from frequency of data back ups to the ASP's obligations with regard to data integrity. Often the agreements spell out the ASP's obligation to return all data within x days of contract termination. Or, you can ask for regular downloads of your customer data.

Two booming areas for hosted software are customer relationship and workforce scheduling management software. In the past, buying CMR or workforce scheduling software could cost a company thousands of dollars. Today, as online solutions are becoming mainstream, there are solutions that are affordable to medium and even small businesses. Take for instance Salesforce.com and eService.com -- two rentable applications that typically cost a user about $50 per month. That's a far cry from the former upfront costs required to install new CRM or scheduling software.

The upper hand

Yet, with all the benefits of rentable software, the market is still slow in shifting. Although most consumers aren't aware of choices, it's really computer software companies who are finding it difficult to offer both options (and likewise aren't publicizing the rentable option).

Besides, with rentable software, the user has the upper hand. Why? If you need to spend thousands of dollars to buy software licenses and get it all installed, your switching costs are high. After all, you've got to repeat that whole process if you want new software. With hosted, rentable solutions, your only switching cost is learning to use the new software. Ditching one provider for another is about like throwing a switch. All you need to do is sign a new contract.

Over time, you'll see major growth in online software. Whether the software companies like it or not, users are demanding to be relieved of the risks and costs of owning software. And, oh yes, released from the endless cycle of software upgrades.

Most of the early adopters of the ASP model are Fortune 500 corporations who want to farm out certain parts of their overall technology line-up. But the benefits are the same for smaller outfits. More and more managers and business owners are finding it makes sense to stop tinkering with software and concentrate on what they do best -- run a business.

Article courtesey of Family Business Strategies.

Kim Link is Director of Marketing for St. Louis-based Connectria, a wholly owned subsidiary of MDSI Mobile Data Solutions Inc. (Nasdaq: MDSI). Connectria is an IT consulting services firm that provides the heavy lifting to design, build and run today’s complex infrastructure technologies. Kim Link can be reached at www.connectria.com. More information is available at www.connectria.com or by calling Connectria toll-free at 1.800.781.7820.

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