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I was chatting with the new CEO of a software startup (a restart really) who was complaining about the fact that his product team never realized the importance of having their product available as a hosted solution rather than as an installable one.

In most cases I believe that software startups should offer their products as a hosted offering. In this case especially – where the application is primarily used by sales and marketing departments. The reasons for that are pretty straightforward. First let’s look at the main barriers to adopting new technology (see here for more details – based on Rogers):

• perceived risk
• triability
• complexity
• compatibility
• observability

It is a no-brainer that a hosted solution is easier to try. It will also be easier for a startup to reduce the perceived risk of trying or even implementing the solution – taking care of the first and third bullet. Lastly, and especially for process-based applications, it will make it easier to use the app in a cross-enterprise environment – meaning that you can now target applications with embedded viral characteristics. Every time someone uses your product with someone on the outside, they are implicitly retelling your story.

One interesting dilemma about hosted applications is whether they should become your only offerings. I am of the opinion that they should – especially if you are an emerging company. First of, and if you are a startup, you do not have the resources to manage two business models. But perhaps more importantly, I do not believe that the two models can coexist under one entity. The needs and characteristics of both offerings are too divergent – both internally as well as for the customer – to be positioned as “alternatives.”

Back in the late 90′s, when the 1.0 ASP models came out, there was a lot of religion about not outsourcing or hosting mission-critical data outside the firewall. That issue has largely gone away by now. Most companies’ IT departments have developed certification programs for hosted applications. Which brings up another great advantage for hosted applications – they do not need to become a part of the IT roadmap – giving you and your customers a chance for speedier adoption and demonstrating faster that you can do well on the last bullet as well.

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