Computing by Subscription
A new breed of service company promises to deliver PCs, software, and great tech support for a low monthly fee. Should you get aboard?Eric Knorr
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.
Making the Leap of Faith
The outsourcing of information technology is nothing new. Huge service providers such as EDS and Computer Associates have offered total computing solutions to big corporations for decades. And big customers of IBM, Compaq, and Dell can command special packages that involve a variety of leasing and outsourced IT arrangements.
Among system vendors, Micronpc.com comes closest to the OIP model; it offers various comprehensive solutions to small and medium-size businesses, including PCs by subscription and Web hosting, designed to integrate with a company's existing IT plan. (See "The Pros and Cons of PC Makers' Service Plans" for more on the services offered by major PC manufacturers.)
By contrast, OIPs take complete responsibility for the nuts and bolts of the IT infrastructure, but on a smaller scale and at a cost far lower than that charged by monster companies like EDS. When users have trouble, from an ugly PowerPoint presentation to a downed network connection, they call one number--the OIP help desk. "Everyone I work with has said that the CenterBeam help desk is great," says Angelique Faul, director of operations at Evans Partners, a public relations firm with offices in San Carlos and Santa Cruz, California, that turned to CenterBeam. "Before, we'd call our computer guy, and it might be two days till he could get here."
So how do you choose a partner that will deliver not only this month, but also years from now? "You want to pick a firm that has strong relationships with larger firms," says Rob Enderle, vice president of Giga Information Group, "so it can survive the consolidation that's going to happen in the market." By that measure, CenterBeam and Everdream--the only two OIPs with a national presence--lead the pack. Based in Santa Clara, California, CenterBeam has struck strategic deals with Dell and EDS, and it secured $115 million in blue-chip investment last November. Everdream, of Fremont, California, claims Hewlett-Packard and Ingram Micro as partners and last September received $50 million in funding from the likes of HP and Siebel Systems.
Among other benefits, these alliances enable CenterBeam and Everdream to deliver on-site service where necessary. Everdream's contract with Ingram Micro's VentureTech Network of VARs gives the company a national on-site service organization. And similarly, through its relationship with Dell, CenterBeam can call on Banctech technicians for on-site service nationwide.
The packages that CenterBeam and Everdream offer diverge in three areas: minimum number of seats, default Internet connection, and networking options. CenterBeam won't support offices that have fewer than ten seats, while Everdream will take on a one-person office. On the other hand, if you opt for CenterBeam's base price of $225 per month for a Dell 600-MHz Celeron desktop, you get a DSL connection and a Lucent wireless LAN setup as part of the package. Everdream's $159 base price includes an HP 866-MHz Pentium III system with a 56-kbps dial-up connection and no local network. XO Communications provides DSL as an option, but Everdream prefers to let its Ingram VAR network make the sale and do the setup for networking. Both OIPs partner with T1 and frame-relay providers.
Other providers that tout similar deals are fast emerging, notably MindShift in the Baltimore-Washington and Chicago areas, and IReadyWorld in the southeastern United States.
These days, even big-company alliances don't guarantee success. CenterBeam's CEO, Sheldon Laube, scoffs at the possibility of business failure but notes, "In the worst case of all, if we disappear, what you're left with is Cisco routers, Dell servers... the same stuff you would have bought most probably anyway." That may be, although the OIP, not the customer, owns the equipment--leaving a particle of risk that your hardware could be repossessed. That nightmare scenario doesn't seem to bother Appshop's Kulasekaran, who asserts that he'd port the data over to new machines and have everything back to normal "inside of a week."
Their Problem, Not Yours
OIPs and their customers cite responsive, one-stop service and support as the biggest benefit. "Most problems are fixed within 2 minutes," enthuses RoseMary Anderson, accounting manager for West Coast Office Interiors of Santa Clara, California, a CenterBeam customer. And Everdream is so confident of its help desk, the company will refund a month's per-seat subscription fee if its support line isn't answered within 90 seconds. OIP customers routinely report that the remote support is so good, on-site technicians are seldom needed.
How can OIPs guarantee high-quality service? Everdream's Gary Griffiths extols the virtues of the advanced tools his techs use to diagnose and solve problems over the Internet: "We have nine patents that are pending right now and another dozen or so that are in the pipeline, and they're all related to improved levels of service."
That technology, along with the self-diagnosing software preloaded on OIP systems, helped sell HQ Global's Mike Grimm. "Everdream has done a lot of things to solve problems proactively, before they fester into bigger problems," he says. "For example, when your PC boots up, it automatically compares all the DLLs and executables on the hard drive to a standard configuration. If it sees an error, it will correct that proactively."
Beyond technology and crack call-center management lies another explanation for OIPs' quality service and support: These companies handle the software and hardware they ship to customers and generally ignore all other hardware, software, and networking. That strategy means fewer choices for customers. Go with CenterBeam, and you get Dell desktops, notebooks, and servers; go with Everdream and you get HPs. You get some flexibility on configuration, such as memory and monitor size, but not much.
Both include Windows 2000 and Office 2000 in their standard packages, along with virus protection, system utilities, audio/video players, an e-mail account, and online tutorials. Accounting software and Web hosting are optional. CenterBeam ships Lucent wireless LAN hardware and Windows 2000 networking by default; Everdream suggests a consultation before you choose a LAN setup. The limited selection is a trade-off, but there's nothing stopping you from deploying other stuff--the OIP just won't support it.
Weigh Your Options
From a pure cost standpoint, the ideal OIP customer would be a start-up that hadn't spent a dime on IT and wanted to keep capital expenditures low. OIPs, however, prefer to focus on a less risky and more prevalent customer base: existing businesses with IT problems and an office full of outdated equipment.
CenterBeam customer RoseMary Anderson faced just such a situation. When CenterBeam made its pitch to her, "We had a very ancient set of computers, from 386s all the way to Pentium-133s," she says. In addition, after employing a series of "incompetent" IT contractors, she was now carrying the support burden herself. "I had reached between 80 and 96 hours a week and I couldn't take it anymore," says Anderson.
Skeptical at first, she grew impressed by CenterBeam's tech-savvy pitch and emphasis on security and reliability. But cost made the decision a no-brainer: "We pay under $48,000 a year for our 21 computers," she says, networking included. "That's less than I would have to pay for a single IT person."
Escaping the upgrade rat race is another key benefit. Included in Everdream's subscription price is an automatic upgrade to more powerful hardware every three years. That pace might be a little slow for an engineering company, but with ordinary office applications it's pretty much ideal. Better, OIPs deliver bug fixes and new versions of productivity applications as soon as they are available.
Angelique Faul factors the cost of downtime into her evaluation of CenterBeam's solution. A year ago, her IT situation had deteriorated to the point where she was losing "an hour to 2 hours of billable time per employee per day." According to Faul, now that she's contracted with CenterBeam and downtime is a rarity, recovering those billable hours offsets the monthly subscription fee.
Where the OIP model begins to falter is in larger offices--and not only those that might need to scrap a big IT setup. For example, Appshop has grown so quickly that Kulasekaran wonders when the volume discounts his company can demand, along with the opportunity to spread internal IT support costs across many PCs, will outweigh the convenience and economy of CenterBeam's flat-rate plan. "When we grow to 300 people, we'll have to do the cost-benefit [calculation] again" to see if the current deal still makes sense.
Kulasekaran thinks that when the time comes, he can cut a deal with CenterBeam and continue the relationship. In fact, he says, he's already negotiated a better deal than the standard flat rate for smaller customers. And Mike Grimm received a major concession--during the shift from in-house IT to Everdream over the next 18 months, Everdream is supporting his older equipment.
Special deals like these raise troubling questions for would-be OIP customers. If an OIP makes concessions to snag big accounts, can it grow smoothly? Will a sudden jump in PCs from a new big account degrade service? There's no clear answer, though CenterBeam cites its relationship with EDS, which is happy to take on large accounts that CenterBeam can't handle. One thing is certain: If an OIP's service were to falter, the value proposition would quickly evaporate.
Outsourcing the Future
David Tapper, a senior analyst with International Data Corporation, firmly believes in what he calls the "utility model" of computing, in which OIPs play a key role. He sees companies like CenterBeam and Everdream as foot soldiers in a long march toward ASP-based computing, where Microsoft.net and thousands of application developers will use OIPs as a pipeline for applications you subscribe to rather than purchase. Already, he notes, both companies have dozens of ASP partners offering such services as e-commerce storefronts and human resources management. But they will embrace new technologies--such as handhelds--only as they become standardized.
Think of OIPs as ultraconservative, outsourced IT departments. If you'd like to stop worrying about the basics and concentrate on technology strategic to your business, an OIP is a compelling option, provided you believe the promises that quality of service will remain high--and provided you're willing to upgrade your current infrastructure in one fell swoop.
Got comments on PC World's Enterprise Technology? E-mail suggestions and feedback. Eric Knorr is a San Francisco-based consultant and writer. Tom Spring is a senior reporter for PC World.
Outsourced Infrastructure Providers: What You Get, What You Pay (chart)
| Vendor | Price per month per desktop | Price per month per notebook | Minimum contract | Help desk hours/days | Help desk guaranteed response time | Standard software | Other supported software |
| CenterBeam (http://www.centerbeam.com) 408/844-0900 | $2251 for Dell OptiPlex with 600-MHz Celeron, 128MB of RAM, 10GB hard drive, and 17-inch monitor | $3251 for Dell Latitude with 600-MHz Celeron, 128MB of RAM, 10GB hard drive, and 14.1-inch screen | 36 months (typical) | 24/7 | None2 | Windows 2000, Office 2000 Professional, Adobe Acrobat | Any Windows 2000 application |
| Everdream (http://www.everdream.com) 510/818-5500 | $159 for HP Vectra with 866-MHz Pentium III, 128MB of RAM, 30GB hard drive, and 17-inch monitor | $219 for HP OmniBook with 650-MHz Pentium III, 128MB of RAM, 10GB hard drive, and 14.1-inch screen | 36 months3 | 24/7 | 90 seconds (or 1 month free) | Windows 2000, Office 2000 SBE, Adobe Acrobat, McAfee ActiveShield, McAfee Clinic, RealPlayer, QuickTime | Any Windows 2000 application4 |
Doing the Math: Outsourced IT
Here are typical costs of setting up a Microsoft-based, 20-person office compared with those charged by a typical outsourced infrastructure provider (OIP). Because OIPs include ongoing software upgrades--and hardware upgrades every three years--in their monthly fees, we've calculated the monthly hardware and software costs of doing it yourself across three years.
If you choose not to hire a full-time IT person, you'll dissipate your salary savings on various VAR setup charges, extended support plans, employee training programs, and (very likely) the incalculable costs of downtime. On paper, the core of the OIP value proposition is clearly premium service and support. Your mileage, of course, may vary.
The Pros and Cons of PC Makers' Service Plans
If you like your PC vendor, you might like the idea of handing over all your support headaches to that company. After all, who knows hardware better than its manufacturer? But when it comes to doing business with old-guard computer makers, expect trade-offs.
On the plus side, major PC manufacturers have far broader hardware offerings than the take-it-or-leave-it desktop and laptop configurations provided by outsourced infrastructure providers such as CenterBeam and Everdream. And the PC companies may offer more complete IT services for some customers. Streamlined, easy-to-understand pricing and simple all-in-one support plans, however, are much harder to find.
Dell and IBM, for example, don't themselves offer packages that let you get a PC and service for one monthly service charge. Instead, they work with third-party leasing firms to devise payment plans for PCs and IT services. And leasing companies like Dell Financial Services (partially owned by Dell Computer) don't claim to offer the breadth of help desk services CenterBeam and Everdream provide.
Micron's Menu
Micronpc.com comes closer to the CenterBeam/Everdream approach. Its Subscription Computing program offers a veritable Chinese restaurant menu of system configurations and levels of IT services to choose from. Unlike CenterBeam and Everdream, which support only the systems they install, Micronpc.com will service any computer. But the company draws the line when it comes to performing complex tasks such as remote network management, data backup, and software distribution.
Gateway, meanwhile, is using its 300 Gateway Country retail outlets as regional support outposts for its business customers. Services include networking, Web and e-mail hosting, firewall protection, Internet connectivity, and application support. And as with Micron, pricing is based on an à la carte suite of options, not a one-package solution.
Will more PC manufacturers offer all-in-one IT outsourcing plans in the manner of start-ups like CenterBeam and Everdream? "Larger vendors are keeping a close eye on what these companies are doing," says John Madden, an analyst with Summit Strategies, pointing out that Hewlett-Packard and Dell have established relationships with Everdream and CenterBeam, respectively. Madden thinks the heavyweight hardware vendors will jump to capitalize on any success they see--and that it wouldn't take much for a vendor to rejigger its sales pitch to replicate the IT-in-a-box approach to selling PCs and services.
For now, however, you might find that it takes several days to get a monthly per-desktop price quote from one of the big guys that matches one of the package deals that CenterBeam or Everdream can put together in an hour.
--Tom Spring
Manage Your Invoices Over the Internet
Business-to-business e-commerce evangelists might preach otherwise, but the Internet has yet to alter one of the most basic business processes: how buyers pay suppliers.
Today, fewer than 1 percent of all invoices are delivered, processed, and paid over the Net, according to the Gartner Group.
But manual invoicing methods are long overdue for revision. Typically, before a buyer pays a supplier, the invoice passes through a lengthy approval process during which each line item is matched against shipping documents and original purchase orders. When disputes arise, buyer and supplier generally must work them out by phone and fax. "It's excruciatingly painful," says Jeetu Patel, executive vice president of research for Doculabs, a market research firm.
Electronic invoice presentment and payment (EIPP) promises to speed things up by allowing you to present, reconcile, dispute, and pay invoices over the Net. EIPP applications address the invoice-to-pay part of the process and are a natural supplement to Internet procurement systems, according to Brian Valente, vice president of marketing at Avolent, a company that creates EIPP protocols for client businesses. Other companies with EIPP products include Bottomline Technologies, BCE Emergis, and NetDelivery.
By managing the review and dispute adjudication process online and transacting payments electronically, EIPP systems could reduce a typical payment cycle from 55 to 25 days, says Valente. But planners must jump some huge hurdles before that happens. For one thing, no standards define a common format for invoices, and without such standards EIPP won't work. Then there's the task of linking EIPP systems to back-end databases.
If you're considering an EIPP solution, here's what you need to know:
Think strategically. "An EIPP is part of a larger business process that is done on the Web," comments Alan Neely, senior vice president for EIPP at BCE Emergis. If you are ready to move your procurement systems to the Internet, take the invoice-to-pay process into account now--down the road you'll have to link the systems anyway. If you've already begun to implement an e-procurement application, work with your current vendors to integrate invoice payment systems.
Allocate a budget. The Gartner Group estimates that the cost of buying software and integrating it into the buyer's and supplier's accounting systems--including linking to procurement and inventory systems--will exceed $2 million.
Calculate ROI. Delivering an invoice online costs $1.65, versus $5 for manual delivery, Gartner estimates. Resolving a dispute via e-mail runs about $10, as opposed to $20 over the telephone. Transferring funds over the Net costs about $1.90 per transaction, compared with $4.50 per transaction for a paper check. Another way to save: Some billers spend $20,000-plus annually to ship invoices by Federal Express, just so they have proof that the buyer received the goods.
Pick a partner and get going. Identify your key partner in transaction volume. Analyze how your current invoicing process works with that company, and determine how many days elapse between invoice receipt and payment. How does your partner view automating the process? The answer will help resolve other questions on standards and vendors.
Don't wait for others to dictate. Within three years, buyers will demand that sellers enable them to adjudicate disputes electronically, says Patel. The cost of doing business will otherwise get too high. And standards will emerge when huge buyers that deal with thousands of suppliers move to EIPP, says Patel. "The Chryslers of the world are not going to deal with 1800 different systems," he says.
--Jennifer deJong
Color Fast: Single-Pass Laser
If you've investigated buying a color laser printer for your office, you're already aware of the two main obstacles: high prices and low print speeds. New printers from Oki Data and Xerox may change all that.
Oki Data's Okicolor C7000 series and the Xerox Phaser 1235 (both built around Oki Data engines) use LED technology in which an array of lights focuses an image directly onto the drum, thereby dispensing with the laser-beam-and-rotating-mirror engine of traditional laser printers.
Thanks to this technology, LED printers complete a color print job in one pass, instead of the four passes color lasers require to lay down cyan, magenta, yellow, and black separately. Whereas the print speed of older color lasers maxed out at 4 to 5 ppm, the Phaser 1235 and Okicolor C7000 series single-pass printers attain color print speeds of up to 12 ppm.
But before you run out and buy a single-pass printer, remember that the first iteration of a new technology can usually stand some improvement. "There's room to improve print quality," says Riley McNulty, an IDC research analyst covering the printing market. And at $2700 to $3599, these first-generation single-pass printers cost a few hundred dollars more than similar (albeit slower) color lasers from competing manufacturers such as Hewlett-Packard. But as manufacturing volume and competition increase, expect pricing to fall in line with color-laser technology. Predicts McNulty, "Single-pass printing should win out over four-pass in the long term."
While IDC wouldn't name any names, keep an eye out for color LED offerings from most major color laser manufacturers in coming months. And then watch the prices come tumbling down.
--Kristina Blachere
Hammer Time: AMD's 64-Bit Challenge
So you think Intel's oft-delayed Itanium processor is the only 64-bit challenger to Sun, HP, and IBM's domination of the high-end enterprise server market? Think again. AMD has its own 64-bit solution, code-named Hammer, aimed at the middle-tier, Intel-compatible server space where Xeon now rules.
What makes Clawhammer (for workstations, due in the first quarter of 2002) and Sledgehammer (for servers, due in the second quarter of 2002) unique is that they extend the x86 instruction set--used by all current Intel and AMD processors for PCs--from 32 bits to 64. This means existing x86-compatible apps and operating systems will run on Hammer processors without modification and--thanks to higher clock speeds--should run at a faster clip than on current 32-bit chips.
AMD believes the incremental approach to 64-bit computing will appeal to many companies. "We're offering CIOs and MIS managers the ability to move up on their own terms and at their own pace," says Bob Mitton, divisional marketing manager of enterprise products at AMD. "They can buy hardware that runs everything they own today. [If they want to upgrade to 64 bits] they can test every application on a case-by-case basis."
Nevertheless, OS and software developers will have to rewrite or recompile their products to take advantage of Hammer's 64-bit capabilities, which causes many industry watchers to wonder: Can AMD muster their support?
The company has tried to entice developers by releasing a software simulator of Hammer. Currently, the Linux community is developing a version of that OS for the processor, and Sun has expressed an interest in making a Solaris OS for it. But industry watchers are skeptical.
"AMD is two years behind Intel in gaining software support for its 64-bit instruction set," says Linley Gwennap, principal analyst for the Linley Group. "Intel's Itanium also is supported by every major server hardware vendor except Sun, whereas AMD does not have any major server design wins. Sledgehammer's market share in large servers is likely to be small unless Itanium suffers additional significant delays."
But there is room in the midsize server space, AMD insists, because the Hammer processors run perfectly well at 32 bits and their success therefore will not depend exclusively on software support. "[With Hammer,] you're essentially getting 64 bits for free," says Mitton.
To an IT department, a gradual migration that employs a known quantity like x86 is attractive. But your company may never get the chance to evaluate Hammer unless a top-tier vendor such as Compaq brings AMD into its server line. And according to AMD, it's still too early to announce anything on this subject.
--Kristina Blachere