How to Run Your Software? In-House vs. Online vs. Outsourced
1. Overview
Of all the articles on this site, this is perhaps the most fundamental because it concerns one the most common decisions businesses face when evaluating technology solutions. Solution options have virtually doubled because there is usually an Internet-based application for each type of traditional/in-house solution. While all the choices can be difficult to navigate, these options allow businesses more flexibility than ever before to meet business needs.
Below are the most common options for implementing a solution.
Solution Implementation Options
| Options | Description |
|---|---|
| 1. In-House / Traditional | Traditional or in-house implementation means that you install the software on your computers and perform any configuration, maintenance, upgrading and user support. For web-based solutions, you may be renting a server. Example:You install backup software on your computer. |
| 2. Online / Software as a Service (SaaS) | Applications available through the Internet can be referred to as Software as a Service (SaaS), Internet services, on-demand applications, web applications, online applications or even "cloud" applications. In the recent past, an Application Service Provider (ASP) meant that an IT firm would host and manage an off-the-shelf application for a company. Since software applications were typically built to be used by only one company at a time, each company would have it's own location on the ASPs hardware to install and run it's software. A fundamental shift has occurred now because Internet applications are built as multitenant applications. Multitenancy usually means that all users share the same application software and only the customer data is separated. A multitenant application means that you never have to worry about software upgrades because all users are be upgraded simultaneously. Example:You sign up with an Internet service to perform data backups. |
| 3. Outsourced / Managed Service | Outsourcing firms are typically called "Managed Service Providers" or MSPs. With a managed service, some aspect of your technology solutions or infrastructure is outsourced to an external information technology (IT) firm. You may outsource all or part of the effort needed to manage a solution which may include installation, configuration, training, maintenance and support. The IT firm may run the software in it's data center or the solution may run on hardware in your environment and be managed remotely by the IT firm through the Internet. You can outsource business applications, network management, website management, backups and security. The MSP may in turn outsource some aspects of its operation to other managed service providers or application service providers. Example:You contract with an IT firm to manage backups for your entire network. |
What is the Difference between "Online" and "Outsourced"?
In general, online application firms focus on providing a specific application solution. With MSPs, the focus is to manage some or all of a company's IT operations as more of an IT partner. The term "management" is the key. As Internet services gain in popularity, expect MSPs to also help manage any Internet Services you use just as it would for other pieces of your technology. At the same time, expect SaaS providers to add more applications and more built-in management capabilities. Suffice it to say that MSPs potentially offer a more independent and customer centric approach to managing all or part of your IT needs. Another differentiator is the fact that many MSPs will perform work directly within your in-house IT infrastructure.
2. Option Comparison
| 1. In-House | 2. Online / Software as a Service (SaaS) | 3. Outsourced / Managed Service Provider (MSP) | |
|---|---|---|---|
| Prerequisite | None | You will need an Internet connection - preferably DSL, T1 or cable | You will need an Internet connection - preferably DSL, T1 or cable |
| Cost Factors | Hardware | ||
|
To operate the software you will typically only need a PC with a web browser | Varies. You may need only a PC or you may need multiple PC's and multiple servers | |
| Software | |||
| License and maintenance cost | None, see "services" below | Varies. Some MSPs will provide the software | |
Labor |
|||
| Install, configure, test , train, monitor and maintain | Configure, test and train | Varies. Some or all labor may be done by the MSP | |
| Services | |||
| Utilities for cooling and electricity | Monthly fees are typical | Monthly fee or annual contract | |
Anywhere Access |
Possibly, if the computer is accessible via the Internet. | Yes | Possibly, depending on the MSP |
Electronic Backup |
You will be responsible for managing the backup | Possibly, depending on the MSP and the type of solution | Typically included |
Reliability Show/Hide detailsMost hosts will specify the amount of uptime by giving a percentage of time like 99.9% uptime. |
Depends on your environment, support and the solution. Hardware can be added for redundancy to increase reliability. | Depends on the solution and your Internet connection. Most will specify the amount of uptime in terms of percent of time like 99.9%. A high degree of hardware redundancy will typically be present. | Depends on your environment, the MSP and the solution |
| Security Show/Hide detailsHow secure is the solution? Authentication, authorization and encryption are important features to ask about. |
You handle all security | The Internet service provider is responsible for security | Varies. Some or all may be done by the MSP |
|
Partner Business Risk Show/Hide detailsSmaller businesses can fold or be bought out. How much of your business is dependent on the solution? What are your alternatives if the product or service was to cease functioning? Will you be able to get a copy of your data in a timely manner? |
You have maximum control | Since an Internet service may control vital aspects of your business, it is vitally important that you get to know your Internet service and have a backup plan. Does the Internet service have strong financial backing? | Since a MSP may control vital aspects of your business, it is vitally important that you get to know your MSP and have a backup plan. |
Control |
You have total control over the solution. | You have limited control. You may not have convenient access to all your data. | Depends on whether the MSP is running any parts of the solution in their data center |
Support |
You contact the software manufacturer for support. | You contact the Internet Service for support. | You contact the MSP or software manufacturer for support. |
| Technology Exposure Show/Hide detailsEach piece of technology for a solution poses a potential risk because all parts must work together. A common scenario, and source of potential problems, is when an upgrade is done to one piece which in turn prevents other pieces from working correctly. |
You must maintain whatever technology pieces you implement. | You are not exposed to technology infrastructure issues directly, the Internet service handles all technology pieces | Depends on the MSP, you may be insulated from technology infrastructure issues. |
Software Customization Show/Hide detailsSome software applications will allow changes to how the software operates and also allow changes on what data is stored. For example, a common change to an accounting application may be to add extra data to be stored on a purchase order. Customizations can be a mixed blessing because while they may help meet a business need, they can also make the software much more difficult to maintain because software upgrades may overwrite custom changes. |
Varies by solution. You may have the ability to customize the software code and associated data. | Varies by solution. You may have the ability to customize the software code and associated data. Since users share the same software, there will typically be the ability to customize through configuration changes. | Varies by solution. You may have the ability to customize the software code and associated data. |
| Software Integration Capability Show/Hide detailsDo you need to integrate the solution with other software? Each application will have different integration capabilities and different formats. |
Varies by solution | Varies by solution | Varies by solution |
| Hardware Upgrade to Increase Performance Show/Hide detailsIf popularity or growth dictates the need for more processing power. |
You will need to secure hardware and possibly migrate software. | The service provider will likely have a process in place to add more processing power. | The service provider will likely have a process in place to add more processing power. |
3. Recommendations
Initial Costs
The initial costs of Internet-based services will typically be lower than in-house solutions because there is no software to install and no hardware to buy. This makes Internet services very attractive for businesses on a budget that want to try a solution to see if it is a good fit. Be sure to estimate the costs of each option covering at least a few years since in-house solution costs may decrease over time.
Reliability, Security and Control
MSPs and Internet Services Providers will typically have more expertise and more resources for running technology solutions because that is what they specialize in. Reliability and security are not trivial pursuits because they both require constant vigilance. However, the perceived tradeoff is that you give up some control and your data is accessible via the Internet—albeit under several layers of security.
The Type of Solution Can Make a Difference
The type of solution can also be a factor in deciding whether to run a solution in-house. For example, it can be very difficult for any firm to keep up on security and spam issues. Email and web hosting are examples where there is a significant benefit to choose an Internet Service or Managed Service Provider.
Certification for Managed Services and Internet Services
Both Managed Service Providers and Internet Services can seek certification to help show that they have adopted proper safeguards for your data. One certification is SAS 70—which stands for Statement of Auditing Standards Number 70—was developed by the American Institute of Certified Public Accountants (AICPA). SAS 70 seeks to ensure that proper controls are in place. Here is a site with more information http://www.sas70.com/
| 1. In-House | 2. Online / Software as a Service (SaaS) | 3. Outsourced / Managed Service Provider (MSP) | |
|---|---|---|---|
| General Advice | In-house can be an appropriate choice when it is cheaper or when you can't live with any loss of control. While your in-house mini data center will not be on par with a commercial data center, it can be "good enough" if you do some planning and have good access to IT help in case issues arise. One key is a to have a good backup and recovery plan and redundant hardware. |
An Internet Service can be a great way to get rid of practical IT headaches like installation, server purchases and upgrades. Who wants to deal with those things if you don't need to? A key differentiator of an Internet service is anywhere and anytime access. If mobility is key and you lack the infrastructure to support it, an Internet Service is a great choice. |
A Managed Service Provider can be a great way to get rid of practical IT headaches. A Managed Service Provider can be a good fit if you lack the resources for in-house IT staff but you still want someone dedicated to manage pieces of your infrastructure. Since the MSP essentially becomes a partner, it is vitally important that you get to know them well and check references. |
Find More InformationUse Research Helper to find related web articles |
In-House "Data Center" | "Software as a Service" SaaS | "Managed Service Provider" MSP |
4. More Info and Tips
Outside Information
- CIO.com: The Truth About Software as a Service (SaaS)
- E-Commerce Times: The Rise of SaaS and Your Regulatory Risks
- Simple Spark: Discover, share and enjoy web apps for your life online. A catalog of web applications for business and other uses.
- Wikipedia.org: Application service provider
- Wikipedia.org: Cloud computing
- Wikipedia.org: Managed service provider
- Wikipedia.org: Software as a service
Related Tips
- Tip 1 - Online and Outsourcing Starter Questions
When evaluating an Internet Service or a Managed Service Provider, here are some possible starter questions.
Business Questions
- How long have you been in the current business?
- How many employees do you have?
- Do your employees go through any screening?
- Do you have SAS 70 certification?
Technical Operations
- Do you have your own data center or do you contract with another business?
- Where are the data centers located?
- What is the maximum uptime?
- What do you guarantee in your Service Level Agreement (SLA)?
Security
- What security measures do you use for your data center?
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