SaaS benefits starting to outweigh risks for some

Managers are looking more closely at hosted business applications

Managers are looking more closely at hosted business applications as the number of unfinished IT projects grows, skilled workers become increasingly scarce, and upgrade and maintenance costs skyrocket.

Many large companies had long avoided hosted services because of concerns about security, customization, integration and long-term costs.

But in recent interviews, IT managers at some enterprises said they are turning to, or at least evaluating, hosted products as a way to offload management of some non-mission-critical applications. Further, some say the subscription-based pricing model can keep IT budget costs consistent and often lower than packaged or homegrown software.

In a report released in March, Forrester Research said that the use of hosted software products in companies with more than 1,000 employees grew by 33 percent from 2006 to 2007. The survey of 1,017 IT professionals found that the most popular hosted services are human resources, CRM and collaboration tools.

Ben Pring, an analyst at Gartner, said that despite IT managers' interest in hosted systems, many of them are "conflicted," in some cases because business units are signing contracts on their own. "[IT managers] see this as a threat," he said. "It's loosening their control and introducing security, vulnerability and integration headaches."

Nonetheless, managers are starting to realize that at some point, IT will become responsible for hosted products, whether it oversees implementation or not.

"They know at some stage, the business people who've gone out and bought this stuff will throw it at them," Pring remarked.

Basil Blume, executive vice president and CIO of Colorado Capital Bank, said that the Castle Rock-based financial institution uses more than 30 hosted applications, which account for 60 to 70 percent of the financial institution's software library.

He agreed that the thought of hosted systems can be "very disconcerting" because of fears that IT could lose control of applications and data. "They're concerned about their data," Blume said. "I am as well."

Still, the benefits of using hosted software have allowed the bank's systems to keep up with its rapid growth, Blume said.

About five years after its founding in 1998, the bank turned to hosted software to quickly add several new programs for customers. At the time, "we were a US$50 million bank," Blume said. "Today, we're a US$700million bank, and many of those [first hosted] solutions are still the same."

The bank's IT managers have concluded that "the ability to scale without having to reinvent that infrastructure is a huge benefit," he added.

The hosted systems that Colorado Capital used include a key Internet banking system hosted by Intuit's Digital Insight Corp.

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