Hosted IT: It’s Big for Small Business

A few years ago, small businesses began trusting companies such as and with basic tools for contact management or data backup. By letting the service provider host the hardware and software on its premises, companies freed themselves from the necessity of buying all their own gear, finding a space for it, powering and cooling it and employing the staff to maintain or operate it.

As this trend accelerates, even more sophisticated applications are on offer through this hosting approach. Further, the hosting providers themselves – many of them firmly in the SMB category – are beginning to host some of their non-core functions with other providers. The hosting practice has even extended as far as having hardware resources on tap – just like buying electricity, water or gas from a utility,

Take the case of Kaseya, a provider of IT automation software headquartered in the British Isles. Its customers initially had to operate physical servers on their premises to run Kaseya applications. After considering short- and long-term infrastructure requirements, Kaseya decided against further beefing up its hardware. To make it easier to harness its software, the company partnered with Florida-based Terremark, which takes care of the IT infrastructure demands on a hosted basis.

“In the case where the infrastructure requirements are not overly predictable and you require flexibility, hosting is a viable solution,” said McMullen. “It lets you gain access to the latest technology as you need it without the upfront capital costs and significant resource pool to implement and sustain this infrastructure. Memory, storage and CPU power upgrades are so much easier, and there aren’t any hardware failures.”

In other words, Terremark owns and operates the hardware resources and Kaseya makes use of them on an as-needed basis.

“This provides the ability to use some of the functionality running in a Kaseya data center for a monthly fee,” said Tim McMullen, C00 of Kaseya. “Customers can have a perpetual licensed version running in a Kaseya data center.”

Hosting Trends

AMI-Partners has conducted extensive research on hosting trends. Over the past three years, small business adoption of hosted services has been growing at a fast pace. 

“Hosting among small businesses (1 to 99 employees) moved from 13 percent adoption in 2006 to 25 percent in 2008,” said Avinash Arun of AMI. “In medium businesses (100 to 999 employees) adoption of hosted services grew from 21 percent in 2006 to 41percent in 2008.”

He attributes the main reasons for this growth to the fact that a large proportion of SMBs do not have full time in-house IT staff. But there are other factors at work, too. By shifting the onus of application implementation and ongoing support to the vendor, SMBs can avail themselves of round-the-clock support.

Further, SMBs can scale adoption rates up or down based on available budget. If they want to begin with only a few seats to see how it goes, that’s easy to arrange. Once they have confidence, it is a relatively simple matter to add more users.

Another reason is more efficient management of the IT infrastructure. Joe in accounting, or a lone IT guy, may be a jewel to treasure when it comes to fixing computer glitches. But with new functions, applications or even servers and storage offloaded to an outside provider, it typically means less downtime, more reliability and the convenience of automatic upgrades. The money side can also be attractive.

“Hosting enables payments to be stretched rather than front-loaded,” said Arun. “Most importantly, the current economic environment favors hosted services.”

Meanwhile, the use of hosting services among small business is evolving and maturing. While basic services such as e-mail, Web site and data backup prevailed in the past, we’re moving into an era of more sophisticated hosted business software applications such as enterprise resource planning (ERP), customer relationship management (CRM), accounting/financials and Business Intelligence (BI). There’s also an increase in adoption of hosted collaborative solutions such as document management, Web conferencing and project management, according to Arun.  

Interestingly, the sweet spot for hosting appears to be in companies with more than 100 employees but less than 250.

“Smaller firms with fewer than 20 employees usually don’t have the resources (no Internet, cash flow) or the need to deploy hosted services,” said Arun. “We also see the numbers dip slightly once the employee size reaches more than 200/250 employees, since these firms have the IT staff and the knowledge to keep things in-house. In addition, larger firms are more cautious of data residing off-site and are more prone to compliance issues.”

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