Business IT: Rent or Buy?

When you need a place to live, youve got plenty of options to choose from. You could build a home from scratch to your exact specifications—and wait a year or more until its ready. Or, you could rent an apartment, reducing your up-front capital expenses, lead time, and maintenance responsibilities in exchange for reduced flexibility and control over the particulars of your abode.

Enterprise applications come with a similar range of choices. Over the past decade, most enterprise investments followed the do-it-yourself model: Put foundational infrastructure in place, purchase software licenses, pay third-party consultants to perform extensive customization, and then maintain it all. But increasingly, companies are turning to application outsourcing as an alternative. Outsourcing promises benefits like reduced risk, lower capital and maintenance costs, improved responsiveness, and simplified deployment. It also helps eliminate overcapac-ity and provides affordable access to best-of-breed capabilities.

Whether youre subscribing to Web-based applications, on-demand services like those popularized by Salesforce.com, or utility computing infrastructures such as those promoted by IBM and Sun Microsystems, there are countless variations on the outsourcing theme: renting software instead of buying it. All offer new ways of letting companies balance their internal and external IT investments to meet their business requirements.

As a technology or business manager, how can you cut through the hype to tell whether and where application outsourcing might be right for your organization? And what caveats should you keep in mind?