Businesses expecting to derive huge cost savings from an application service provider (ASP) model will be disappointed, according to a local enterprise business software developer.
However, one user who spoke to Computerworld is finding the model a cheaper option for his company.
Garth Laird, managing director of Navision Software, claimed that although economies of scale exist for shrink-wrapped, office-based products, customising the ASP model will blow out costs.
"Successful companies differentiate using IT," he said.
"When an ASP model is used to deliver business applications, the strategic advantage is lost."
But the cost will blow out, he said, if a multiserver, multi-application environment is used.
"Hosting applications involves the removal of the application server only, [but] the infrastructure, such as network management and technical administration, is still necessary to run the application."
One early adopter of the ASP model has enjoyed considerable cost savings already.
United Nations Children's Fund (UNICEF) Australia has been using Solution 6's new SAP R/3 offering for just over two months.
Catherine Duston, finance manager of the charity, said: "We have access to a broad choice of applications and it was a cheaper option.
"Being a nonprofit organisation, we can't afford to employ maintenance staff. "Using an ASP model, we get better support," she said.
Duston claimed a basic application deployment would have cost at least $130,000 in hardware and software alone, with ongoing maintenance and operating costs an added expense.
Bruce McCabe, research director at Gartner Group, said that aside from cost considerations, other issues will slow ASP adoption.
"Protection of corporate data, bandwidth problems and telecommunications liabilities for mission-critical applications are issues that have not been resolved yet," McCabe said.
Duston admitted data loss, bandwidth capacity and downtime were "a concern", but said benefits far outweighed the risks.
"We have much better security than previously," she said. "Although you need a certain amount of trust to hand over hosting of corporate data, it's a call each company has to make."
Laird picked more holes in the fabric of ASP, suggesting hosted applications may not be suitable for the SME (small to medium enterprise) market at which the model is aimed.
He told Computerworld: "Following a softening in the market for large-scale enterprise resource planning (ERP) deployments, tier-one vendors have touted the ASP model as an effective medium to allow the SME market to take advantage of their wares at a fraction of the cost."
But Laird said this might not be the optimum solution.
"The applications are no different, therefore they may not be totally appropriate," he claimed.
However, the UNICEF experience suggests this is, to a large extent, unnecessarily pessimistic.
"SAP R/3 is designed to meet best business practices," Duston said.
"Basic business processes are the same, regardless of the size of the company, and we are happy with the business fit of R/3."
Duston added that UNICEF has already generated 12,000 invoices in the two months of the ASP model's operation.