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Why Change?

I was talking to someone this morning about online financial applications. They made a comment that online versions of financial management software tend to have fewer “bells and whistles” than locally-installed versions … and that the only reason that people would consider an online version would be if they had multiple locations that all needed to access common information. I’m sure that this is a pretty common perspective when it comes to online applications – after all, why would you NOT have something as important as your financial data installed where you could control it best – in your own office? Let me answer that – in two parts:

Fewer Bells and Whistles
I worked for a software company for over 12 years. For most of that time, I worked in Product Management and Strategy – determining future direction of the software products, and deciding which features would be included in the upcoming releases. We always said that product features were determined by studying the market and listening to our customers’ requests … but in reality, that’s not what happened at all. In most cases, WE would (internally) come up with the features that we thought would work in the product, and THEN look for customer requests that supported our decisions. We put in features that WE thought would be cool, or the Engineering team thought would be cool, or the VP of Engineering thought would be cool … and sometimes, that would match customer demand too. After working in this environment for so many years, I would estimate that the average user of our software regularly used about 20% of the functionality that was actually there – because that was all he/she needed. More often than not, the bells and whistles included in a software product are not really there for any good reason at all – its just more code that can contain bugs and more configuration options that can confuse users. So why not keep it simple?

Install Locally as Default
Up until recently, there really was no option. Network bandwidth limitations, security concerns and data storage were all good reasons why local installs were the only way that software was implemented. But let’s look at the facts/fallacies associated with this now:

  • Fallacy: Your data is more secure if its on your own computer equipment. Actually, the big data leaks that have made the news recently have happened when people have “lost” laptops containing sensitive data. Companies providing hosting services understand the importance of data security, and spend a lot of money and time making sure that they have the best protection systems in place – after all, its their business. Compare that to the server you have sitting under a desk in the back of your office – which do you think is more safe?
  • Fact: The bandwidth limitations of yesterday are gone – network bandwidth is now far cheaper, and more available than it has ever been in the past. This means that applications can now run across the internet at similar speeds to locally installed applications. Look at Amazon.com, Travelocity.com or Hotmail.com as examples.
  • Fallacy: You will lose control of your applications if they are hosted . Actually, you will have more ability to control your applications if they are hosted because you are not concerned with software and hardware upgrades, backups and the like. Nicholas Carr¹ made the point that “Ironically, even as many smaller companies are embracing hardware hosting, software-as-aservice, and other forms of utility computing, many others are currently building up their IT assets, drawn by low component costs. I think those companies are going to end up regretting a lot of the investments they’re making. They’ll soon find that the highest IT costs aren’t component costs but labor costs, maintenance costs, electricity costs, and other secondary expenses – and that owning your own gear ends up reducing your flexibility rather than increasing it”.
  • Fact: Hosted applications are much cheaper to operate than locally installed ones. Even just considering the basic “office” applications, Forrester Research has estimated that these applications cost the average business $300 per user per year. Once you include labor costs, that estimate becomes even worse – in fact, for a 10 person company, the cost per employee per year for Microsoft Exhange 2007 is in excess of $4500! Compare this to $426 per employee per year (including all labor costs) for a better online solution! That’s a 90% cost saving!
  • Fallacy: Your backups will work for you in the case of a disaster. Have you ever tried restoring from a backup and operating your business from it?In around 95% of cases, it doesn’t work. Applications and configurations change over time, and backups are rarely reconfigured to keep up with these changes. Online applications have backup built in – data is automatically replicated so that even if a meteor took out a whole data center, another one containing the same information would be instantly online – without even a blip.

So I guess, my response to the person I was talking to was predictable. Keep applications simple … and use hosted applications wherever possible … especially in small businesses!

¹ “An IT Sea Change for Smaller Companies” – http://www.roughtype.com/archives/2006/09/an_it_sea_chang.php

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