Rent-a-server: the latest trend in business software.

Application service providers hope you'll turn to the Web for more than surfing

The saying "the Internet changes everything" may not be too far a stretch. Paradigm shifts have become commonplace as old industries are reengineered and new ones emerge. Of late, they've been coming even faster as businesses and consumers continue to harness the potential of a medium still in its infancy. Although it was immediately apparent to many observers that the Internet could be used to deliver software cheaply, the nascent market was fairly confined to consumer downloads of browsers and other relatively small files.

As the transmission technology matured, many software companies began delivering the same applications that could be purchased in retail stores via their Websites--thus cutting out the middleman. Individual users who had enough faith in the Internet--and wanted the discount software makers often provided--were the early adopters. Small businesses were slower to catch on to this model. But a recent industry push toward hosted applications may well open the eyes of business owners everywhere.

Within the past year application service providers (ASPs) have begun to multiply faster than rabbits--and with good cause. IT research firm International Data Corp., based in Framingham, Massachusetts, expects the market for hosted applications to reach $6.1 billion in 2001. More than just providing downloadable applications, ASPs allow businesses to outsource a portion of their information technology infrastructure by using applications that are maintained on the ASP's servers rather than in-house. The applications are then accessed through a browser on each user's desktop. Small businesses especially could benefit from the growth of ASPs because they lower the cost and responsibility of maintaining software.

"Many small businesses don't have an established IT department," says Dave Castellani, CEO of MI8, a New York City-based ASP. "We can offer big business tools at a fraction of the cost." Launched just last year, MI8 (www.MI8.com) supplies its clients with groupware applications such as Microsoft Outlook, Lotus Notes, ELAN Goldmine and Novell Groupwise. Castellani estimates it would cost over $75,000 to install and maintain the hardware and software required to get an office of 40 users up and running in the first year, and $50,000 in the second. MI8 can provide the same service for an annual fee of $10,500, and can have a company up and running in 24 hours.

Hosted applications aren't new. Essentially, they're an Internet twist to the centralized computing strategy that was abandoned, by and large, when powerful desktop computers became available. But sometimes in computing, just as in fashion, everything old becomes new again. This time around, ASPs are touting the supposed benefits of hosted applications. These are:

* Cheaper hardware. Companies need only low-end PCs or dumb terminals that can run a browser.

* Cheaper administration. It's easier to upgrade a centralized application than going to each desktop.

* Universal access. Because they're Web-based, employees can access applications from anywhere as long as they have Internet access and a browser.

For all their promised benefits, hosted applications have their drawbacks, not the least of which is an unproven track record, says Steve Robins, a senior analyst with Boston-based IT research firm The Yankee Group. "I think we'll see a shakeout where some of the companies turn out not to be able to provide the level of services that they thought." There are a lot of players trying to remake themselves into ASPs, including software firms and Internet service providers (ISPs). Robins warns potential users of hosted applications to look for companies that have extensive knowledge of the applications as well as the ability to provide access via the Net. "You want to know that both the expertise and understanding of your business needs are there as well as the ability to seamlessly host your applications," he adds.

Another issue is bandwidth. Many of the applications that are now being hosted were not originally developed for use across the Internet. Therefore, the performance may not be what you'd expect. To make sure its applications run smoothly, MI8 offers its users a free high-speed digital subscriber line (DSL) account to access the Net. (DSL is 10 times as fast as a 56 Kbps modem.) Hosted applications, however, aren't the only ones that have traditionally been handled in-house and have migrated to the Web. Boca Raton, Florida-based HotOffice Technologies provides intranet services for small companies.

"In the past five years, large companies have been deploying intranets, and it has put small businesses at a disadvantage because they couldn't afford the IT people," states Mike Franz, chairman and CEO of HotOffice. HotOffice 3.0 provides all the group collaboration and publishing features of an intranet without the hassles of managing one.

Whether you're looking for a suite of applications or intranet service, you will be able to choose from a wide range of companies. Established names like Sun Microsystems--which plans to reengineer StarOffice, a newly acquired office suite, for Web delivery--IBM Global Services and Microsoft are planning to cast their hats into the ASP ring alongside less well-known players, such as US-Internetworking and Portera.

Renting software by the month can make sense for some users. Small businesses especially can devote the resources necessary for an IT department to other aspects of the company. The ability to license just enough technology without having to upgrade and maintain it will answer the cries of many small office/home office owners. But for now industry analysts warn that this is an unproven technology and suggest you tread with caution.