Others concur: SMBs should be outsourcing (and good vendors mention the alternative)

Others concur: SMBs should be outsourcing (and good vendors mention the alternative)

Summary: There's been quite a lot of feedback to my blog post the other day regarding how small/medium buisnesses should really be thinking about outsourcing all of their IT (or as much of it as possible).  Most of the feedback seems to concur that it really makes no sense for SMBs to insource given the state of the state in terms of what's available as a service today and how reliable it is.

TOPICS: Outsourcing

There's been quite a lot of feedback to my blog post the other day regarding how small/medium buisnesses should really be thinking about outsourcing all of their IT (or as much of it as possible).  Most of the feedback seems to concur that it really makes no sense for SMBs to insource given the state of the state in terms of what's available as a service today and how reliable it is. 

It didn't take long for Nick "IT Doesn't Matter" Carr to piggyback my post with one of his own that said:

Ironically, even as many smaller companies are embracing hardware hosting, software-as-a-service, and other forms of utility computing, many others are currently building up their IT assets, drawn by low component costs. I think those companies are going to end up regretting a lot of the investments they're making. They'll soon find that the highest IT costs aren't component costs but labor costs, maintenance costs, electricity costs, and other secondary expenses - and that owning your own gear ends up reducing your flexibility rather than increasing it.

On the e-mail backchannel, Nick said "there are 10-person firms that have Exchange servers running in closets. It's crazy." Agreed. It's completely nuts. If you must have Microsoft's Exchange Server, there are probably hundreds of companies like Centerbeam that you can outsource Exchange Server hosting to (and they'll even hook you up with Blackberries and stuff like that if you need them) and then, once you outsource, all you have to do is modify the MX record on your company's DNS entry.  Here, in the comments area of ZDNet, Donnieboy was on the same wavelength as Carr when he wrote:

All of the issues arround acquiring a data center including selecting the hardware, selecting the software, hiring the employees to run it and do the programming, keep the systems patched and secure, making you have 24x7 coverage, is just one huge distraction and headache.

Nick thinks small businesses buy gear more out of habit than because of the myth that they need to.  In writing a post entitled Allow me to pile on the bandwagon, Chris Wilson at Washington state-based consultancy Indigo Moon Systems expanded on what I think those in a position to sell infrastructure to SMBs should be saying to those SMBs before making the sale:

[David Berlind has] a great quote, and it's one that you should be thinking about the next time you have a conversation with whoever you're getting your IT advice from these days "But a real IT partner should say Well, we'd be happy to sell you that storage, but perhaps there's a different way you should be thinking about your IT"..If you're not hearing that, or something like it, think about who you are relying on for purchasing advice these days. If they aren't at least pointing out that you have service-oriented alternatives, get a second opinion.

I second that (not the great quote part... but rather, the what you should do part if your IT supplier never mentions the outsourcing option). 

Also on the backchannel, regariding SMBs outsourcing their IT, John Gates asks why stop there? Outsource your telephony while your at it. Gates has a vested interest in the discussion. He represents Whaleback Systems -- an outfit to which SMBs can outsource PBX-style telephony for $50 per seat per month.  It involves on-premises gear and IP-based telephony but is billed to the SMB as a managed service (read: it hits the accounting books differently too). Wrote Gates:

All infrastructure requirements are managed by Whaleback and call quality is assured by Whaleback’s unique end-to-end 24x7 network monitoring and management of every phone and every call....a premises-based IP PBX managed service is a system that acts and looks like a traditional PBX service featuring a server on the site of a business which handles the switching of calls and media services (ie: voice mail etc), but is managed, controlled and monitored by the third-party service provider....The managed service model is all inclusive....Whaleback customers pay a fraction of the cost for installation, configuration and leasing of equipment and a low monthly service fee of $49.95 per person for unlimited local and domestic calling and 24X7 monitoring and support. The fee also covers the charge for DSL or cable connectivity. For my business, I use the managed service. I paid about $1.5K for the installation of 7 phones and the IP PBX system and pay $350.00 per month for the service which includes the cost of the DSL connection and calling charges.

Fifty dollars per month for unlimited domestic calling and full PBX functionality without the need to hire your own Centrex person? Sure, if you're an SMB, you can roll you're own VoIP or try to use Skype or something like that. But, to get telephony backed by a service level (quality) agreement and 24x7 support for $50 per month per seat? Whaleback probably has competitors so I don't want to come across as endorsing just this one company.  But, once again, outsourcing yet another part of your SMB sure seems like a no-brainer to me.

But not everyone agrees on outsourcing.  Wrote one commenter on ZDNet:

However, small businesses are not typical consumers of SANs, in my experience as a consultant. In many markets (accounting, for one) the case can be made easily for a single server with a reliable backup solution. This does not require full time in-house staff, and although it does not promise the uptime of externally hosted solutions, it allows the business to keep closer tabs on privacy and information protection, and over the course a one to three years, the cost of duplicate backup hardware (the whole server) is likely to be recouped.

Speaking of small businesses running their own servers and backups, the food had barely digested in my stomach (from the dinner with the folks from EMC where this was the topic of conversation) when an e-mail turned up in my inbox pitching an insourced storage solution. Here, slightly modified to protect the innocent since I don't have permission to reprint the letter verbatim, is what the e-mail said:

a [doctor] has implemented the solution for data protection to ensure that his SQL database and patient photos are backed up first to [our product] and then onto tape. It's the portability of [our product] that sold him because in the event of a hurricane he can simply power down [our product] and throw it into one car and take the tapes in another and have all their critical information on two different devices. Small business can solve problems in ways that big business can't imagine!

I think the statement that "small business can solve problems in ways that big business can't imagine" is correct. Through outsourcing. Or, our doctor friend can just keep the data on a server in some data center that's accessible from anywhere in the world and let the hoster worry about fault tolerance and reliability. Why on earth would a doctor want to be driving around with data in his or her car and (and tapes in another -- something I totally didn't get) and worry about how to re-establish the operation of a mission critical application at some separate location? Doctors -- particularly ones running away from a deadly hurricane -- should have the freedom to focus on their patients.  Not their IT.

Topic: Outsourcing

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  • Outsourcing will also spread to large corporations whose primary business

    has nothing to to with computers. In a matter of time there will be no good reason to have email servers, web servers, database servers, workgroup file servers, etc, in even the largest corporations. Outsource all of that and let the managers focus on selling soap, underwear, sausage, or whatever they do.
  • Rose colored glasses

    You dodged the issues my snarky post brought up. Is outsourcing actually cheaper than hiring? Is it effective, or does it simply run your business into the ground because you lose control over what's happening?

    Here's a story from the real world, albeit not IT directly. A manufacturing company -- let's call them "Manf" -- outsourced all engineering to "Eng". Eng was asked to automate a material handling task. My company was contracted. We drew up a system. They said things like, "No, we don't want electrical panels on the factory floor. Put them inside a structure." So we purchased a $50,000 fiberglass structure, complete with air conditioning. This gets marked up, since we had to research, purchase, and prep the building, plus profit of course. So now it's $100,000. The engineering company then marks it up AGAIN to $200,000.

    Then they say "You know, we don't want to have to walk over to that big electrical panel inside that big fiberglass housing to turn off a motor, so put motor disconnect stations at each motor. Oh, and since that's an ugly environment, make sure that they are all NEMA 4X [water-proof, dust-proof, and corrosion-resistant, and therefore stainless steel]." These are (a) unnecessary and (b) much more expensive than standard disconnect stations. Again, we mark it up and then Eng marks it up.

    So when we were all done, we had sold a system that should have cost ~$500,000 for more like $800,000, and then the end-user paid $1.6 million for it.

    The problem is that the people worked for Eng, not Manf. So they did their jobs, put in a way that maximized profits for Eng. This meant that Manf was bleeding money left right and center. You could walk around the place for days and never meet someone who's paycheck said "Manf" on it. A few years later the whole facility was shut down, but this case will never be studied in B-schools as a failure of outsourcing. They'll probably blame it on American labor being to expensive; they should have outsourced to China!

    You also don't explain how I'm possibly going to get value out of outsourcing my $50 ink jets or my $10 desk calculators. Okay, an Exchange server is pretty complicated. Of course, I have to wonder how a small company would even know of the existance of Exchange. Did they really just order it off of Amazon.com? My guess would be that a company with 10 people would probabl use And1 or GoDaddy.com. True, this is outsourcing of e-mail. But you probably want someone who works FOR YOU to decide who gets the contract. And can set it up. And is there during normal business hours to ask questions like "how do I spell-check?"

    You're looking at outsourcing through rose colored glasses. I'm not saying don't outsource. I'm saying what IBM was once famous for saying:

  • Bad math

    Dave, we've been over this a half dozen times before, and I still disagree. Once a company gets big enough to have an on staff IT person (10 - 20 people, typically), it is really not that expense to keep things like email in house. For $1,500 you can have enough hardware to handle 1,000 - 2,000 email users, and you can add $2,000 or so in Microsoft licenses to that for exchange, or $0 for a *Nix email server. Even if you go the Microsoft route, you're looking at $3,500 in hardware and software, and it takes literally 0 hours per week to manage an email server (I know, because I have managed them before). Once the initial configuration is done, they re headache free. You mentioned Centerbeam, who charges $45/month/account. For a 10 person company, that is $5,400/year.

    Please explain how $5,400/year is cheaper than $3,500 amortized over 3 - 5 years? Or for the 1,000 person company, please explain how $540,000/year is cheaper than $3,500 amortized over 3 - 5 years.

    Furthermore, the in house solution offers you supreme choice and control. For example, Web hosting. Does your Web host offer Ruby on Rails? Probably not. If they do, I bet it is an upchagre. It takes literally ten minutes to install Ruby on Rails on an in house server, and costs nothing. Likewise for a different DB backend if you want, custom extensions and modules, etc. Please explain how outsourcing gives you more choice, control, and saves money.

    You have never actually been able to show this, you keep claiming that it is cheaper.

    I understand that you have been exposed to IT departments that do some really silly things, like limit mailbox and attachment sizes, force cleanup of accounts, and so on. Do not confuse the IT centric (as opposed to user centric) policies of the IT departments that you have dealt with, with the advantages or disadvantages of in-house solutions.

    Justin James
  • has anyone outsourced qbooks?

    I can see how a 5-people technology company can outsource Exchange, yet I can't see how it can outsource accounting.

    QuickBooks 2006 is dog slow even on a local GigE network. Try it over broadband.

    Yes, there is QuickBooks Online Edition - but it doesn't do inventory tracking, and thus, we can't use it.

    Show me a capable hosted multi-user accounting with fast access and response, with inventory tracking, estimates, payroll, etc., and I will be all over it.
    Alex Gerulaitis