Enterprise Technology: Computing by Subscription

Since the dawn of the PC age, medium-size and large businesses have gone through the same drill. You outfit your employees with a daunting jumble of computers, software, networking devices, and the associated items people need to do their work well. And then you pay a staff of IS experts to deal with the inevitable user questions, compatibility glitches, and other bumps in the road. Is there a better way?

In this month's Enterprise Technology, we look at a new breed of service provider that claims to simplify life by providing a package of equipment and outsourced tech support--all for one monthly fee. We'll tell you how to determine whether one of these providers is right for your company.

Consider the copying machine. You pay a monthly fee to use it. Nobody thinks about it unless it breaks--at which point a tech visits, replaces a part, and disappears.

What if your company's computers, software, and local-area network could be maintained in the same offhand way? That's the proposition offered by new companies--dubbed outsourced infrastructure providers (OIPs)--that charge by subscription for an officeful of hardware, software, and networking. OIPs rent bread-and-butter IT by the seat. You pay a couple of hundred bucks per PC per month for someone else to shoulder the burden: desktops, laptops, servers, printers, routers and hubs, e-mail, backups, Windows and Office 2000, Internet connectivity, and help desk services.

Led by innovative start-ups CenterBeam and Everdream, OIPs primarily serve small to medium-size businesses that would otherwise handle tech needs internally, rely on a patchwork of vendor support plans, or outsource to a local value-added reseller (VAR) or service company. However, their services may also appeal to large enterprises with small, far-flung offices that don't have on-site IT staffers.

But by no means are OIPs for everybody. For one thing, they support only the hardware and software they supply. In other words, you basically have to upgrade your entire office at once, and then donate the old stuff to charity or hand it out to employees. And because these companies are still in start-up mode, their customers are gambling that OIPs' business model will permit them to provide high-quality service over the long haul.

"It was a little hard to swallow at first," says Ravi Kulasekaran, CEO of Appshop in Fremont, California, and one of CenterBeam's largest customers. "We had to give up 25 new computers that we owned outright." But when he ran the numbers--and figured in CenterBeam's willingness to buy those existing PCs for $300 apiece--Kulasekaran was sold. An application service provider (ASP) that in 2000 grew from 20 to 160 seats, Appshop has plenty of in-house tech savvy, but focusing that expertise on the core business made more sense.

HQ Global, the world's largest turnkey office provider and Everdream's biggest customer, is a good example of a large company that discovered that an OIP was a good fit. With 370 business centers across the United States, "it's extremely difficult to provide a high level of IT support," says Mike Grimm, HQ Global's chief technology officer. "I was able to show that through a reduction of head count, depreciation expenses, and an elimination of capital expenses, I would save more than 10 percent [using an OIP]." Grimm plans to turn over responsibility for 3000 PCs to Everdream.

The wisdom of disposing of IT infrastructure you've paid for and replacing it with rented hardware and software may seem counterintuitive. But in most organizations, the total cost of ownership remains high. According to the Gartner Group, the average business spends between $4500 and $7500 per PC per year in maintenance and amortization--though with upgrades and acts of God, it's difficult to predict costs year to year.

OIPs typically charge between $150 and $300 per month per PC, plus a once-only setup charge of several hundred dollars to move data from each old machine to each new one. That adds up to a cost of around $3000 to $4000 per PC per year, depending on peripherals, the type of Internet connection, PC configuration, and other factors. This fixed rental fee includes continuous software upgrades, data backup, hardware upgrades every three years, and one-stop, guaranteed service and support.

Whether an outsourced, computing-by-subscription solution makes sense for your company depends on several factors. If you've recently invested heavily in equipment and personnel, and you're happy with the results, there's little reason to start fresh with an outsourced solution. But if you're hemorrhaging uptime and fretting over how to recruit and retain good IT talent, OIPs provide an appealing option. Just keep in mind that in outsourcing a vital part of your business, you have to fully trust the OIP you choose.