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.

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