Control rather than cost is the big issue when it comes hosted services, says Rafe Needleman.
I was a little surprised when the Twitter-for-the-enterprise service Yammer won the TechCrunch50 Best of Show award in 2008. Not because Yammer is a bad app or because I think the idea of a business Twitter is silly — in fact, I think it makes a lot of sense. But because as an enterprise service, Yammer seemed to have one key shortcoming: it was released as a hosted service yet did not give business customers direct control of the records of conversations their employees might be having.
The hosted model makes financial sense. It is much cheaper to contract with a service such as Yammer than to buy and install software inside a business. However, it is not realistic to think that the people inside businesses running their own email servers will happily encourage sensitive employee conversations to go outside the firewall to a hosted service. Saving money does not trump control.
Information control
So it makes sense Yammer is now available as installable software. Users of this version of the service will pay more — they have to provide their own hardware, backups and, most importantly, staff to support the app. But they gain the control over information IT types like.
Another business-orientated, Twitter-like product, Present.ly, launched in 2008 with an installed version which was followed by a hosted service. Yoshi Maisami of Intridea, which makes Present.ly, told me his company is making more money from the inside-the-firewall version than from the hosted service. But he has more accounts on the hosted app.
Egnyte, which offers a hosted file server for businesses, now has a version it calls the Local Cloud, which puts the data that would otherwise live solely on Egnyte's servers on machines that businesses can install inside their firewalls.
Egnyte is still designed around the idea of hosted file storage, and the Local Cloud product synchronises with hosting servers. But the local option does at least give customers access to their data if their internet connection is disabled.
Not all Web 2.0 start-ups see the need to offer local access to their services, though. I asked Jennifer Zeszut of market-analytics company Scout Labs if any of her customers were asking for a local version of the product, and she said they are not.
Nature of the data
The difference in the case of Scout Labs is the nature of the data being stored, and where it has traditionally been controlled. Employee communications and file storage come from within a company. Infrastructure, habits and laws have grown up to encourage that data to stay there.
But for online services that undercut traditionally consulting-based services, such as measurement analytics, there is little desire among businesses to pull the entire operation inside the IT department.
There is also, of course, the issue of perceived reliability. If an email or file-storage service goes offline, a business can grind to a halt. While I do not believe IT departments are inherently able to provide more uptime than hosted services, a business leader at least knows where to direct complaints if the company's email suffers a glitch.With analytics services, a few minutes or hours of downtime are unlikely to have an immediate material impact on a company's ability to operate.
Real-world issues
I am happy to build the Webware 100 Awards program using services from webware companies such as Wufoo and PollDaddy. But to sell to businesses in the real world, it is not enough to offer a web-based service that is less expensive than a traditional software app.
You have to understand the habits and laws, the sacred cows and the fears of customer companies. Local versions of apps that address these issues may be less efficient and more expensive. But they can also sell better.
