Have you wrestled with the economics of purchasing a software application vs. paying a monthly fee to a managed service provider (MSP) for access to the application? You’re not alone. I have found that in most cases the specialization and economies of scale of an MSP delivers greater value than trying to do it yourself.

A couple examples of this for our company was in our decision to use a hosted project management solution by Clarizen and a hosted Microsoft Exchange solution by Mailstreet. For example, for us to purchase, install and manage our own Microsoft Exchange server, we estimated that it would cost us at least $10,000 in the first year alone for hardware, software licenses, installation fees and ongoing administration. Instead, we pay less than $100/mo for our employees to have access to MailStreet’s Hosted Exchange service, allowing us to add and delete users any time we need to. For those partners, contractors and customers that need email boxes from us, we simply provide them an IMAP mailbox from our hosting provider, 1and1.com. This approach has saved us thousands of dollars a year and many hours of headaches we used to have trying to manage our own email server in-house.

Our customers find themselves needing to make this same type of evaluation as they consider using our cloud-based monitoring and information management tools – a service offering we call Monitor+. We have learned firsthand that the total cost of ownership (TCO) of developing, integrating and supporting all of the components of Monitor+ over the past 3 years has been much higher than we expected… despite how much due diligence we initially did. Fortunately, we have been able to spread that cost across multiple customers over a period of years and thus we are able to offer very competitive monthly fees.

When considering all the direct costs associated with creating the Monitor+ service offering, I believe our partners and/or customers would end up spending nearly 80% more to acquire and support all of the applications that comprise Monitor+ vs. paying the Monitor+ monthly service fee we charge. When requested, we help our customers evaluate the "rent vs. own" costs for themselves, and typically they end up choosing the MSP option verses trying to develop a proactive monitoring solution on their own. Ultimately, Monitor+ frees our customers and/or partners to focus on their core business and avoid the risk of disruption of their voice and data services.

Depending on your tax situation, the after-tax cash cost to finance the development, installation and support of an integrated application platform like Clarizen, Mailstreet or Monitor+ would favor an MSP option. Since MSP fees are expensed, a growing company can essentially use the MSP’s capital. In today’s environment of tighter credit and a scarcity of cash, most companies should have a bias to a managed service or cloud computing as part of maximizing after-tax return on assets/equity.

What do you think? If you found this post useful, please leave a comment, share with your peers, or subscribe to the news feed to have my future posts delivered to your news feed reader.

First of all, hats off to Johna Till Johnson and her article this morning in Network World entitled “Cloud computing: The telcos’ game to lose“. In addition to helping all of us understand the role that traditional Telco’s play in offering cloud computing services, she breaks down cloud computing into 3 basic areas:

1. Software-as-a-Service (SaaS)

2. Platform-as-a-Service

3. Infrastructure-as-a-Service

My goal today is not to dig into the differences of these 3 categories of cloud computing (a good future topic), but to simply ask if cloud computing has impacted you lately – either positively or negatively. As I mentioned in my previous blog, Telizent’s service offering to intelligently monitor and maintain business communication systems (Monitor+) is accomplished largely through cloud computing. Using Johna’s definition above, we’d likely be categorized as a SaaS offering, and 95% of the time we are able to remotely resolve any alarm / problem that is identified by Monitor+ using our SaaS toolset.

But what about our internal use of cloud computing? We actually try to walk the talk. About a year and a half ago, we were searching for an easy-to-use project management tool that we could use to manage some of our telecom projects. Microsoft Excel was not interactive and Microsoft Project was too complex and too expensive. After a little research we discovered a SaaS Project Management tool called Clarizen and we haven’t looked back. It enables us to manage projects across multiple locations, clients and users via the web, without having to load anything on a project member’s machine… in fact much of the interaction is done right from their email inbox!

On the bumpier side of the equation, about a year ago we began using Microsoft’s Office Live CRM tool to track our web inquiries and manage our opportunity pipeline. All was going well until one morning (about two months ago) we woke up to find that the “create new opportunity” function in Office Live was no longer working after a new release the night before.

After 6 weeks of submitting several requests to their message board (they have no direct support phone number any longer) and not getting any resolution, I had to find an alternative option for our organization. So far we’re very pleased with our new CRM solution from Tigerpaw Software. However it is with some chagrin that I share with you as I write this blog entry that I decided to check one last time to see if Microsoft had resolved the Office Live issue without notifying me… you guessed it, the “create new opportunity” feature is now functioning again.

Just keeping it real. Cloud computing is of tremendous value to businesses, but there are some risks that we each need to plan for accordingly. What are your experiences with Cloud Computing? If you found this post useful, please leave a comment, share with your peers, or subscribe to the news feed to have my future posts delivered to your news feed reader.