Hosted services can be defined as contracting with an outside vendor to host network services such as electronic security, data backup, file storage , email, etc. on servers that are accessed over the Internet, as opposed to accessing a server that is physically on-site at the customer location. Typically customer data is housed on high-capacity servers that are shared among many customers.

Many critical line-of-business software packages do not perform well under the hosted model. These include nearly any database application based on Microsoft SQL, MySQL, Oracle, Progress, Omnis, SyBase, Microsoft Access, as well as other database platforms. Databases require very reliable connections between the client desktop and where the data is stored. If this connection is interrupted, even for a very short time (a few seconds or less), the application will crash, requiring the user to restart the software, and resulting in lost productivity and possible data corruption. Note that database applications with a web front-end may indeed work well in a hosted environment, but may require significant additional expense in configuration, hosting, and administration.

Hosted services are often marketed as a way to decrease operating expenses and management overhead, while supposedly improving reliability. There are many companies and individuals in the information technology industry that promote moving all network services in small environments to hosted solutions. It should be noted that many of those promoting such solutions have a vested interest in selling such solutions.

It makes good technical and financial sense for some organizations to move carefully selected services to hosted solutions via the Internet. You are advised however, to avoid the hype and marketing propaganda and to look very carefully at all of the arguments for and against hosted services prior to making the jump! Some applications lend themselves very well to the hosted model. For instance, email, email virus & spam protection, and computer anti-virus protection can be hosted externally for many customers with excellent results for relatively little expense. Of course, websites have been hosted externally for many years.

The connection between desktop computers and an on-site server is often twenty times or more faster than the organization's Internet download speed, and eighty times faster than the many business class Internet upload speeds. Database applications such as those listed above will not function over low-speed Internet connections. In rural communities, higher capacity Internet connections may not be available, and would be extremely expensive in any event.

Ted believes that most organizations, regardless of size, have the same basic information technology requirements. Regardless of whether an organization has five employees or five thousand, they have the critical needs of security, Internet connectivity, (file) data storage and protection, printing, email, backup, system reliability, etc. The difference in IT needs between small and large organizations is primarily one of scale. The need is the same, the size and cost of the solution may not be.