Software as a Service Tradeoff Considerations Cost Effective or Liability?

1. Software as a ServiceTradeoff ConsiderationsCost Effective or Liability? Authored and Presented By: Gordon F. Jones gjones@stratafusion.com Partner: The Stratafusion Group (925) 786-3207 January 24th, 2006

2. Presentation Agenda • Background on Your Presenter • Evaluation of Core Competencies of IT dept. • ASP models – Complete or Hybrid • New offerings – What companies are doing • ASP- Pros • ASP - Cons • Key Contractual Points • Summary: Q & A

3. Assess your IT department’s Core Competency - Leverage others for the rest 14% 9% Informational Strategic • Increased sales • Competitive advantage • Market positioning • Innovative services • Increased control • Better information • Better integration • Improved quality Transactional 8% • Cut costs • Increased throughput 69% Infrastructure • Business integration • Standardization • Business flexibility & agility • Reduced marginal cost of • business unit’s IT Source: Modified from “Leveraging the New IT Infrastructure.”

4. Case Example of Putnam’s Hybrid model Web Services – Creating & distributing Analysts Reports leveraging ASP Putnam Investments G.C. matches topic of report with interests of Putnam’s clients Analysts reports written on web site operated by B.M. SalesForce.com Grand Central Communications Blue Matrix Client info. drawn Email addresses sent Customer

5. Pros • Improved Reliability, Scalability and Security – ASP’s Core Competency • Frees up IT staff to focus on Core Competencies • Potential Savings/Cost avoidance, especially capital investments • Standardization solution of applications, avoiding costly customizations

6. Cons • Potential security risk with customer data being transmitted outside company’s firewalls • Costs can escalate if not clearly defined • Lack of bargaining power in future contracts once committed • Service levels can be less if business had relied on “high touch” • Loss of flexibility if std package not good fit for company • Risk if ASP goes out of business

7. Cons (cont.) • Employee turnover at ASP • ASP may not help in transition to another vendor • May have “choke points” if several conversions happening, without capital investment • Lack of control when major releases forced out – “Big Bang”

8. Key Contractual Points re: Operations • Specific Performance metrics – Reliability, Response time. • Penalties and remedies defined. • Uptime – definitions, who measures, partly down. • Security & Intrusion Detection • Can they hardware hot fix or is there a scheduled mtce time window? • Notification of ECR’s • Costs – per server, transaction? • Service levels responses to Sev. 1 and 2 incidents. Always state 24 x7 – do not care about holidays! • Choke points – know where they are. • Replication capabilities to remote sites – cost • Business Resilience model • Infrastructure OS software version – currency position. • Notice period of software changes • Compliance positions – SOX IT Sec 404, S.E.C, Sas 70 etc.

9. Key Contractual Points re: Costs • All costs to be specific in contract – avoid hidden costs e.g. custom reporting • “Cap” on rate increases • Termination “without cause” – company but ASP must give adequate period to allow selection & conversion.

10. Key Contractual Points re: Applications • Timing of major releases • Position on customization requests • Bug fixes turnaround time • Process & procedures for changes

11. Summary: Q & A Gordon F. Jones gjones@stratafusion.com Partner: The Stratafusion Group (925) 786-3207 January 24th, 2006