VideoFor Triton Network Systems Inc., an ambitious, growing start-up in Orlando, installing a big-name enterprise resource planning (ERP) system is turning out to be a lot like having one's cake and, yes, eating it too.
Chartered in 1997 to make wireless data equipment for digital telecommunications, Triton Network gets a full ERP suite from Oracle Corp. It gets all of it operational in a mere six months--an eye-blink to battered veterans of ERP installation wars. Best of all, Triton Network is investing next to nothing in the system.
That's the piece of cake the company keeps: up-front cash, freed for sinking into product development.
"We decided very early that we had to go with a tier-one ERP solution," recalls Ken Vines, CFO of Triton Network. "This is the cheapest, quickest way to get one."
Vines is talking about an emerging software delivery service called Internet application hosting, or Web hosting for short. A fresh take on computer-services outsourcing, Web hosting is a pay-as-you-go arrangement. A company pays a flat monthly rate to a service provider--in Triton Network's case, Oracle's newly minted Business OnLine division--which sets up, operates, and maintains an information system for the duration of the agreement, usually three years.
Web hosting started making waves about a year ago, and then "seemed to explode on the landscape" in October 1998, says Marty Gruhn, vice president of Summit Strategies Inc., market analysts in Boston. In one approach, the user leases the application, which remains the property of the service provider. In another, the company buys the application. It may even buy the hardware to run it. In both approaches, the customer cedes control of the software to the provider hired to run it--at the provider's facility, which could be clear across the country. The customer uses its everyday PCs, equipped with Web browsers, to access the distant application via the Internet.
The Internet communications distinguish Web hosting from earlier outsourcing arrangements. Before, to hire an outside specialist to handle any significant data-processing duty, a company also needed costly, high-capacity communication gear to pipe the data back and forth. That often amounted to expensive T-1 lines leased from a telephone company. But the combination of the Internet and Web-enabled applications eliminates the customer's need for such facilities.
Along with the Internet, advances in data processing have relieved a lot of the performance and response problems associated with old-time outsourcing. It used to be that a mainframe doing time-sharing duty could get bogged down if too many of its clients made demands at the same time. Today's servers are much better at handling multiple, simultaneous tasks.
Besides, in some Web-hosting arrangements, a customer may not even have to share computer time. In the service just announced by SAP America Inc., a separate server will be dedicated to each separate customer, operating the version of SAP's R/3 ERP system tailored for that company's use.
Whatever the physical arrangements, Web hosting swaps contract management for computer application management. The contract, after all, defines the performance a customer gets out of the application. It can include assurances for round-the-clock support, 99 percent uptime, and predefined service levels. "Now the customer can point to a contract and see all the features covered in the service," says Tom Melchiore, director of outsourcing for SAP America.
When signing up to outsource a PeopleSoft system with USinternetworking Inc. (USi), an Internet application provider based in Annapolis, Maryland, Sunburst Hospitality Corp. spent about two months in negotiations. But finalizing the contract was largely a formality, says Charles Warczak, vice president of finance and systems for Sunburst, a Silver Spring, Maryland-based hotel operator. "The business points were agreed to up front, because [USi] had presented a very detailed proposal," he explains. "We made the proposal an exhibit to the legal document, so dealing with them on the legal side was almost a nonissue."
Too Good to Pass Up
All told, Web hosting promises considerable benefits:
* Getting started with a new application can be much quicker and cheaper.
* The overhead required to operate applications is replaced by set monthly costs.
* The persistent problem of hiring and retaining IT staffers to run applications vanishes.
* Higher service levels and expert knowledge of the applications may be available from Web-hosting specialists.
But the arrangements can present some liabilities as well. Two of the biggest concerns are data security and system response across the Internet. The Web-hosting industry is taking pains to allay those fears. (More on this below, in "Overcoming Doubts.")
For Triton Network, Web hosting was too good to pass up. The big win is delivery of a tier-one ERP application to a company with limited IT resources. Triton Network started life in 1997 as a 3-man team; currently it has about 100 employees. Nevertheless, it was determined to acquire a top-level ERP system. "We think we have a very good opportunity to become a large company in a short period of time," says CFO Vines, and the company wanted a system that could keep up with anticipated growth.
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