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Lease or Buy? The former is becoming a software option

Most businesses are familiar with the "lease or buy" question. Whether it applies to premises, IT hardware or car fleets, the decision forms a fundamental part of business strategy. But while there are many things that can be leased by businesses, software has not traditionally been one of them.
Software systems have always been bought, installed, built and managed by companies themselves, usually at great expense and with considerable effort. Over the last few months, though, another option has surfaced, and that is to lease software applications from an application service provider (ASP). But what can businesses gain from renting applications rather than owning them?
ASPs are companies - software vendors or third parties such as telecoms firms - that provide services for packaged software applications from a centrally managed facility. Clients access the applications remotely, over the Internet or leased lines. The model is not suitable for everyone, as ASPs generally offer standard packaged applications with little customisation. Software leasing is therefore best suited to smaller organisations with relatively simple requirements.

Most businesses are familiar with the "lease or buy" question. Whether it applies to premises, IT hardware or car fleets, the decision forms a fundamental part of business strategy. But while there are many things that can be leased by businesses, software has not traditionally been one of them.

Software systems have always been bought, installed, built and managed by companies themselves, usually at great expense and with considerable effort. Over the last few months, though, another option has surfaced, and that is to lease software applications from an application service provider (ASP). But what can businesses gain from renting applications rather than owning them?

ASPs are companies - software vendors or third parties such as telecoms firms - that provide services for packaged software applications from a centrally managed facility. Clients access the applications remotely, over the Internet or leased lines. The model is not suitable for everyone, as ASPs generally offer standard packaged applications with little customisation. Software leasing is therefore best suited to smaller organisations with relatively simple requirements.

For single-site, single currency, single-language organisations, there are considerable advantages to leasing applications, including reduced cost overheads, faster go-live times and overall peace of mind.

Reduced costs

Outsourcing enterprise applications to an ASP can have a dramatic effect on costs. For a monthly fee, applications are installed, secured, managed, backed-up and upgraded at the host's data centre. This means that client companies do not have to invest in expensive servers or administrative staff. This removes the unpredictability of IT costs and the headache of finding qualified technical staff. As the company expands, the software can be scaled up accordingly, without having to invest in new machines or people.

Faster deployment

Installing enterprise applications can be a lengthy process, involving negotiations with vendors and consultants, customisation, integration with existing applications, testing and training. By leasing a suite of applications, much of this time-consuming work is removed. New applications can be up and running in a week, if it is a pure, uncustomised, out-of-the-box solution. Even those ASPs that offer a degree of customisation can get a company up and running in a matter of months. For start-up companies, or those expanding rapidly, this reduced 'time-to-market' can make a crucial difference to commercial success.

Peace of mind

Perhaps the most attractive aspect of leasing software applications is the peace of mind that it provides.

Applications are hosted at state-of-the-art data centres, which are manned 24 hours a day, 365 days a year by professionals with extensive experience of the software being provided.

Security is tight, back-ups and disaster recovery are impeccable, and the size and scale of the servers mean that the applications remain highly available. And where the hosting company is also the software vendor, clients have the additional benefit of a permanent direct link to professionals from that company.

Application leasing is certainly not a solution for everyone, and any company thinking of going the software rental route needs to think seriously about whether it is really the best fit for their own particular circumstances. However, it's likely that more and more companies will start to take this route for the considerable benefits that it can provide.

This column was prepared by Oracle Corporation. Questions can be sent to mfischer@oracle.com

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