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Application hosting here we come

Whether you call it cloud, SaaS or hosting, putting applications outside the enterprise data center is an increasingly attractive option.

Cloud this, SaaS that -- every which way an IT manager turns these days an application outsourcing offer awaits. The options are appealing, and will only get more so in 2010 and beyond, industry watchers say.

"Continued economic, competitive and customer pressures will drive a growing proportion of organizations of all sizes across every industry to migrate to hosted versions of business and IT management applications," said Jeff Kaplan, managing director of THINKstrategies Inc., an IT consulting firm.

The economy especially makes ignoring a hosted offering difficult for an IT manager to do, agreed Mark Gilbert, a research vice president at Gartner Inc. "When you look at the IT spend, people are under pressure. If you can't come up with a plausible reason why you need to run this in your data center, then why would you do that if there's a cost advantage elsewhere?" he said.

That means companies that don't have the need for high levels of customization or ultra strict security will increasingly turn to hosted options from the likes of Google, Microsoft and others, Gilbert said.

Companies in highly regulated industries are still afraid of the cloud, but there are an awful lot of people who are willing to say, 'I'm dealing with Microsoft, not Joe's Outsourcing down the street
Mark Gilbert
Gartner Inc.

"Companies in highly regulated industries are still afraid of the cloud, but there are an awful lot of people who are willing to say, 'I'm dealing with Microsoft, not Joe's Outsourcing down the street, and that's good enough reason for me to use a hosting-type service," he added.

And Microsoft, putting a stake in the hosting market with Microsoft Online Services, doesn't appear to be messing around. You might even say it's waging a pricing and a functionality war against Google, Gilbert said.

Pricing for the standard, multitenant Microsoft Business Productivity Online Suite (BPOS) starts at $10 per user per month, recently lowered by $5 in what Gilbert said he considers a competitive thrust against Google. On the email side alone -- the suite comprises hosted Exchange, SharePoint, Office Live Meeting and Office Communications services -- the deal is hard to refuse, he said.

"We went through the numbers when BPOS first came out," said Gilbert, "and found that unless you're with a large company of more than 10,000 users and are extremely efficient running your Exchange environment, you cannot meet these numbers."

"IT managers are becoming increasingly willing to offload, or 'out-task,' their email and other 'simple' business applications requirements to better serve their end users and reduce their [total cost of ownership]," Kaplan said.

Growth in the hosted application market will be substantial, Gilbert said. For example, he added, Gartner anticipates that somewhere along the lines of 30% to 50% of email applications will be hosted over the next few years.

From the Microsoft perspective, besides being aggressive on pricing, the company is trying to make its key enterprise applications more hosting friendly with the 2010 versions of Exchange and SharePoint, for example, Gilbert said. "Even with the multitenant version of BPOS," he added, "Microsoft plans to offer greater customization through what it calls Sandbox Solutions."

As Gilbert wrote in a recent Gartner brief, "A First Look at SharePoint 2010," SharePoint Online will provide more than 90% of the features of the premised-based version. The feature range will include content management, portal, enterprise search, business intelligence and the ability to develop on the platform. "Sandbox Solutions will enable better ability for customization of cloud-based applications. This increase in capabilities should drive more users to the cloud offering," he wrote.

Of course, with SharePoint 2010 not shipping till next spring at the earliest, Microsoft is attempting to "freeze the market" a bit, Gilbert said. "Microsoft will claim a big chunk of this pie."

Beth Schultz is an IT writer in Chicago. She can be reached at

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