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BWSmallBiz -- Tech December 14, 2007, 5:00PM EST

Tech: Let Us Serve You

Web services are now so cheap and plentiful you may never buy software again.

By Rachael King

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Photo-illustration by Stephen Webster

San Francisco serial entrepreneur Peter Yared was tired of spending thousands of dollars on computer servers and the gold-plated IT folks who run them. So this past April, when he launched wdgtbldr (that's widget builder, severely compressed), a Web service that helps marketers create interactive ads, he wondered if the company could rely instead on Web-based software and hosting services. Much to his surprise, Yared found plenty of low-cost options, some of them even free. "I am amazed at how cheaply and easily all of the functions of a small business can be set up and shared by employees," says Yared. The six-person company now uses 12 software services. Its monthly bill: $371.

No longer do small companies have to spring for servers and IT staff just to get the basics. With software services, you don't install programs on your own computers or server. Instead, you sign up online for software and use it while you're connected to the Internet. You store your files in the service provider's data center, with security features that ensure that only you and your employees give access to them. The provider is responsible for running all the software and hardware and fixing any problem that crops up. The only thing you need to do is maintain a good Internet connection.

Many of these new software services were spawned as alternatives to the most popular programs from Microsoft. A company can use Gmail instead of Microsoft Outlook, or Google Docs instead of Office. Basecamp can be used for project management instead of Microsoft's Project. Not to be outflanked, Microsoft has responded with Microsoft Office Live Small Business, its own collection of Web-based software services, including business e-mail, Web hosting, and accounting.

Whoever the provider, the services are getting popular. About 27% of small and midsize businesses are using at least one software service this year, up from 9% in 2006, and 17% use two or more, according to Saugatuck Technology, a Westport (Conn.) market research firm.

The big draw: money. At his previous companies, Yared spent about $10,000 on server hardware and software such as Exchange and QuickBooks, and about $24,000 a year for an IT consultant. Yared figured he'd have no trouble finding online software for basic functions such as accounting and word processing, but was pleasantly surprised to discover SOASTA Concerto, which handles the more specialized task of testing the quality of the ad software his company creates. At $250 a month, SOASTA is fairly pricey, but QuickBooks online costs Yared only $20 a month, and Google Analytics, Google Apps, FreeConferenceCall.com, and Zoho CRM are free.

Relying on software services does have its drawbacks. Some business owners worry about security and privacy, because their data reside on another company's servers. Most Web services come with fewer bells and whistles than typical software packages. "The real hangup for most folks is the office suite," says Daniel Golding, vice-president and research director at Tier1 Research, a consulting firm based in New York City. "It's easy to find a good online word processor, but it's harder to find a good spreadsheet." And occasionally, services from different providers don't work together well.

But you can maneuver around these snares. To mitigate security concerns, seek out a well-established provider with a good reputation. If you routinely use an obscure formatting function in your documents, test for a word processing service that lets you perform the same tricks before you commit. Most of all, be prepared to adjust your expectations. "Good is good enough," says Yared, arguing that the low cost of these services and the way they help employees easily collaborate from their home offices trumps any minor hassles.

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