New Venture Lab: Equipping Christian Entrepreneurs

Question

What is a hosted solution or hosted software and why should I consider it?

Answer

There are three primary ways for you to procure software for your business and you should carefully consider which one may be the best approach for your business:

1. Custom-developed software - this is software that you have custom written for your business, either internally or by an external software development firm.  This will typically take a long time and cost a lot of money and be expensive to maintain.  But if you have sufficient time and capital and if you feel that proprietary software is a very important and strategic part of your business plan, then this may be a good idea.  If not, you should either license or rent a software solution.
2. Licensed software - this is also called packaged software and is software that is written and maintained by a 3rd-party software company.  The development and maintenance costs are spread over all of the users, so this is a much more efficient method of developing software than custom development.  As a licensee, you still need to install and operate the software and maintain its operation, servers, back-ups, etc.  Packaged software should be used when you do not have the time or money to create your own, when the software is not an integral and strategic part of your business, when you want onsite speed and performance and when you are concerned about the long-term cost of software ownership.
3. Hosted software - this is also called application hosting, application service provisioning or software as a service and is 3rd-party software that is streamed to you through a web browser from a hosted data center.  The benefit of this method of procuring software is that your software costs are experienced monthly or quarterly and all maintenance and operations of the software is included in the service fees.  This is usually the least expensive in the short-run, but may be more expensive in the longer term.  You may experience some service issues unless you have sufficient band-width and an air-tight service level agreement with the provider to guarantee sufficient service levels.