Hosted Applications: Hosting Gets Hot

Users cite increased flexibility, lower cost and fewer management headaches as benefits.

If there's a hot spot in the enterprise software business, it's hosted applications. The reason hosting is taking off is simple: why buy the $500,000 red Ferrari when you can drive it any time of day or night for a fraction of that amount?

Manufacturers are finding that, instead of purchasing package software, then going through the cost of installing, maintaining and upgrading -- not to mention staffing -- hosted applications allow them to tap the business functions of enterprise software over the Internet.

The catch is that larger manufacturing firms that have already invested tens of millions of dollars in software, installation, staffing, upgrading and internal networks aren't about to switch. But for medium-size and smaller companies, catching a ride on the hosted train looks like an economy ticket to ride express.

"We have no overhead for an IT department, nor do we have to maintain our own accounting system," says Woody Sponaugle, president and CEO at Calley & Currier, a small manufacturer of wooden crutches. Calley & Currier is using the hosted software service of Netsuite, one of the leaders in this market.

Some medium-size companies are taking advantage of hosting as well. "It gives us a lot of flexibility," says Brad Gross, network administrator at Matthews International's marking products division in Pittsburgh, which makes a variety of marking products for industrial uses.

Matthews is using Salesforce.com, a provider of customer relationship management software over the Web.

"I don't really want to manage another server, nor worry about the added connectivity we'd need right now if we had bought our own CRM application," Gross adds. "I have enough IT issues I have to handle. It's good for me to be able to offload as much as I can to somebody else."

While hosting can save money and reduce hassle for companies without a big IT staff, the hosted model has its potential drawbacks. For one thing, mobile access sometimes can be dicey, unless you pay extra. "The hosted aspect can be tough if you have a salesperson with a laptop who is somewhere without Internet access," Gross points out.

Matthews' sales staff and outside sales representatives use Salesforce.com's Professional Edition, without the wireless capability the hosting service offers. One way around the mobile problem is Salesforce.com's "offline edition," which includes a snapshot of key data, so that mobile workers aren't totally dependent on an Internet connection that may not always be available.

Another benefit of a hosted application is that manufacturers usually can get as much or more functionality at lower cost. "If you look at other CRM packages, what they cost is usually a lot more money than what we are paying for the hosted service," Gross says.

Before electing to go with San Francisco-based Salesforce.com for its CRM needs, Matthews first had a homegrown system and later went with a software package. Even then, though, the functionality was less than what the company has available today via the online-hosted service. "It gives us a lot of flexibility," Gross explains. "For example, every time a potential customer fills out our questionnaire on our 'contact us' page, a sales representative is immediately notified that this person is interested in our products. That's a sales opportunity for us."

Matthews' sales staff also is able to see everything that's going on with an account at a single glance. "We didn't all have this information available at a glance before," Gross says. "Through that one screen we can see all the account information and every contact in that organization, plus whatever sales opportunities are there."

The Salesforce.com service includes a full complement of capabilities, including search, query and analytical functions that can be done by any business person, without the need for an IT staff person to handle complex queries. Employees can assemble custom reports and consolidate key performance data into a "dashboard" on their PC screen.

Calley & Currier, based in Portsmouth, N.H., has been using the Netsuite service for more than two years to handle accounting, manage inventory and track sales and customer leads. "We've been able to do whatever we want to do on there. We've been very pleased, and it's been going well for us," says Sponaugle. "Initially we had some concerns about the loss of control, but those fears were not realized."

"We especially like the idea of not having to worry about upgrading, downtime or compatibility issues -- all the problems we had before," Sponaugle recalls. "Plus, we can access these applications from anywhere. Anyone at any one of our plants can download information on our accounts. The communications benefits of doing things this way are terrific."

The Netsuite system includes both ERP functions as well as CRM. "For mid-size companies, having all the ERP applications and all the customer records in the same package at a cost point they can afford is very attractive," says Zach Nelson, CEO of the San Mateo, Calif.-based software hosting firm.

Last November SAP, the enterprise software leader, began offering a hosted service that targets mid-size companies, offering a rate as low as $325 per employee user per month. That means that instead of worrying about the cost and complexity of a huge ERP project, manufacturers can now tap into the Mercedes-Benz of software applications over the Web.

Others competing in the applications hosting arena include RightNow Technologies and SalesNet. Even Intuit, known best for tax software for consumers, offers QuickBase, a project-manger application available as a hosted service for companies to collaborate and share data with remote workers.

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