The trend over the past many years has been to have software hosted and maintained by an Application Service Provider ("ASP") rather than the company maintaining the infrastructure to run the software. This trend has increased as most applications have become web-based. That is to say, the software is run with a browser (i.e. Internet Explorer) and can be access by anyone with a high-speed Internet connection. As high-speed Internet access becomes increasingly common the requirement for a Client Server application becomes less important. Many of the Property Management & Accounting software companies offer a hosted solution (e.g. Yardi, and Intuit RES). In fact, one firm only provides a hosted version (RealPage).

Should you allow your mission critical software (e.g. Property Management & Accounting system) to be hosted by the Vendor? Here are some pros and cons to be aware of before making your decision.

ASP Pros

Quick Start

ASP applications can often be on-line and operational more quickly. The Application Service Providers (e.g. Yardi) are adept at setting up the application and have the necessary hardware in place.

Low up-front Costs

The entry cost of the application is typically lower because you are often in essence renting it. The cost for the hardware is defiantly lower as the ASP provides all of the hardware. You don't have to hire additional staff to run the data center, troubleshoot network issues, maintain backups, etc.

Easier Upgrades

They ASP is capable of applying upgrades, patches, and bug fixes quickly and easily. Regression testing and the like are performed by the ASP prior to updating the files.

Easier/ lower cost Maintenance

The ASP is responsible for maintaining the hardware. They schedule backups, take care of hardware failures, and maintain a contractual agreed to up-time.

Lower human capital

Usually requires less people to run the application internally (i.e., web servers, data storage, administration, etc.).  Some of the ASPs are also SAS 70 ( www.sas70.com) certified and that can help reduce costs on Sarbanes-Oxley ("SOX") audits.

ASP Cons

Less Control Over Mission Critical Software

Having a mission critical software (e.g. accounting) in the control of an ASP is a risk, but one that can be mitigated. It is important to perform due diligence on the ASP, establishing service level agreements, expectations around access to data, issue resolution, back-up and restore procedures, and communication channels.

Potential Higher Cost of Ownership

Depending on the structure of the fees, using an ASP may cost more in the long run. If the fees are transaction based and this is a long term solution the fees could easily exceed self-hosting costs. There are many factors that influence the total cost of ownership. For example, the staff required to maintain the system and hardware, license fees, annual maintenance fees, transaction volumes, number of users, etc.

Generally, cost comparisons will show that costs for an ASP will exceed that of self hosting over a 10 year period, even when additional resources are required.

Limited to No Control of Timing of Upgrades

In the case of patches and bug fixes this is a positive; however, it can be a problem if new functionality is introduced. Unless you have adequate notice there may not be time to prepare training materials or train staff on changes. Especially if you have well-defined policies and procedures in place.

Difficulty with Integration of Other Applications

Integration with another application can be challenging and in some cases not an option. You need to examine the architecture of the system and the hosting environment. Are there API's for the data you need? What is the availability to access real-time data? Will there be any transactional load problems? In other words, is it possible that your request for data can over burden their ability to send it?

An important question to ask is: who actually owns the data and if you stop using the ASP, how do you get a copy and in what form will the data be?

Difficult to Access Data for Custom Reporting

Like integrating with other applications, it can be difficult to get the data required for custom reporting. In addition, some firms (i.e. RealPage) charge clients to access the data. Some data may not be available at the level you require (e.g. summary vs. detailed transactions). The ability for the ASP to send results for data requests may not be adequate, both from a time to process and the ability to process the request.

Don Wood is a PMP with over 25 years of experience in project management, business process improvement, and information technology for the real estate industry. Please visit www.dbrw.com for more information.