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Web-Based Apps: A Strategic View

The advantages and disadvantages of cloud computing for corporations.

(originally published by Booz & Company)

On the whole, today’s chief information officers (CIOs) in companies large and small are anything but enthusi­astic when asked their opinion of the ubiquitous client/server networks they manage. The client computers, whether desktop or notebook, are costly to buy and maintain; given the pace of technological change, they also need to be re­placed every two or three years. The servers and the networks themselves are cumbersome, very breakable, expensive, and difficult to control. Worst of all, the personal productivity applications loaded on ever more powerful clients so employees can actually get their work done — a software sector long dominated by Microsoft — require that companies spend a king’s ransom not just to purchase them, but to train users. And these same users must be retrained every time vendors update the programs and add yet more features.

Considering the cost and complexity of these networks, it’s no surprise that CIOs have lusted after the dream of a so-called thin-client computing environment, in which programs reside solely on servers and are doled out to cut-rate, slimmed-down, “dumb” workstations as the users need them. A minimalist version of this computing concept came into being with the invention of the Internet browser, which made it possible for individual client machines to access Web-based software — variously known as ASP (application service pro­vider), software as a service, and now cloud computing. A good example is, which provides salespeople with data management tools that can be accessed from anywhere via the Web.

But applications like Salesforce are geared toward a limited customer base. And until recently, no one had successfully offered the one thing that would make thin-client computing a widespread reality: Web-based personal productivity applications — the word processors, spreadsheets, and presentation software on which every knowledge worker has come to depend.

Finally, we have the advent of offerings such as Zoho office suite, ThinkFree Office, and, most no­tably, Google Apps. Even Microsoft has entered the arena, with a Web-based version of Microsoft Works, though the software giant is still shying away from offering its big moneymakers, Word and Excel, online. Although these applications aren’t yet quite ready for prime time, especially in computing environments on the scale of large corporations, their strategic implications, especially in an age of vastly increased mobility and the rise of the globally integrated corporation, are profound.

The virtues of Web-based productivity applications are many and compelling. Most obvious — and an issue dear to the heart of every CIO — is the cost relative to purchasing a full Microsoft Office package for every employee who needs such tools. Office costs US$408 per user, which includes three years of maintenance. Every additional year of maintenance costs $74. So a company with, say, 19,000 employees needing Office to do their jobs would have to pony up $17.6 million over 10 years for the software. If only 20 percent of these workers were given Office and the rest were provided with a free Web-based application suite — whose maintenance and upgrading is the provider’s problem, not the CIO’s — the total 10-year cost would come to just $3.5 million, a savings of $14.1 million. Few organizations can afford to ignore numbers like those.

The financial advantages in­crease even more if one takes into account the cost savings achieved by shifting the storage burden from clients or the network to the vendor’s data centers — and no longer incurring associated costs such as regular backup of employees’ hard drives. And since documents and spreadsheets stored on the Web can be accessed by anyone with the appropriate privileges, the burden imposed on corporate networks to manage the exchange of countless numbers of files is eliminated, as are the risks of contamination by e-mail viruses — another large cost savings.

Most of these programs are offered at no cost as part of a “bait and switch” strategy. Developers of this software hope to sell users ad­ditional, more powerful versions of their applications — so-called enterprise versions that run on client/server networks.

Which only highlights the lim­itations of the scaled-down Web-based productivity software. The maximum size of a word processing file produced in Google Apps, for instance, is just 500 kilobytes, plus two megabytes per embedded image, not huge in this age of documents that include pictures, spreadsheets, and numerous other design features (but enough to store a 125-page book without images, for instance). Other offerings are more generous; Zoho and ThinkFree allow files of 10 megabytes or so. Meanwhile, formatting and revision capabilities remain either nonexistent or primitive at best. Moreover, users must be online in order to use these applications.

Yet despite the relative lack of features, two productivity benefits of Web-based applications stand out. First, users can collaborate, editing Web-based documents and spreadsheets simultaneously; viewing the changes they make almost immediately; and, because most of these applications offer integrated instant messaging, discussing these edits the moment they are made. With all documents and spreadsheets stored in a central repository that everybody can ac­cess, users can search and index the entire database. When companies compare working this way to developing and using an enterprise search application that must retrieve information from individual computers, they see immense savings both in time and in money.

The second benefit is interoperability. Because these applications are browser-based, they are free of any restrictions created by the type of computer or operating system being used. Windows, Mac OS, and even Linux users can work together seamlessly, without worrying about file or storage compatibility.

Given these features, the rise of Web-based applications offers an intriguing strategic possibility: The cost advantage of Web-based applications — and, presumably, of the low-power computers needed to run these programs — should allow CIOs to be more generous when passing out computers to the rank and file in the organization. And when personal productivity tools spread farther down into the corporate hierarchy, employees throughout the company may be able to contribute to the organization more fully as they are linked to the huge information resources of the Internet. And they may be able to work with one another more flexibly.

That advantage takes on special significance in fast-globalizing business environments. Rapidly deploying teams to new locations where infrastructure is iffy and IT support is minimal becomes much easier when all that is needed to get up and running is a lightweight notebook computer and an Internet connection. Such increased agility will let companies explore new market opportunities cheaply and rapidly, without the risk of an overinvestment of people, time, and money in marginal markets. Moreover, the relative lack of features in Web applications will probably be irrelevant in nascent markets, where skill levels may not be what we’ve come to expect in more developed countries. Indeed, storing proprietary and sensitive information on the Web and not on local computers would be a significant advantage in less-developed markets where the security of both data and physical computers remains a concern.

On the enterprise level, how­ever, security and privacy concerns may be the one thing that could derail the success of Web-based applications. Despite the consid­erable value of storing files on Google’s or Zoho’s servers, that data is no longer under the direct control of the company’s internal technol­ogy and is thus more vulnerable to hackers and other computer security problems. Most offerings include some level of encryption for working with and storing files, and Google, for one, guarantees the security of files stored on its applications. Yet although Google is in general a trusted name, the company has already conceded that it searches e-mails sent by users of Gmail, its e-mail program, in order to target ads at users based on their interests. Other, less well-known companies may base their storage systems outside the U.S. CIOs have to weigh whether that sort of environment is appropriate to use for sensitive corporate information.

So far, thousands of smaller companies have already availed themselves of Web-based productivity applications. Will larger corporations follow? That depends on whether, and how quickly, CIOs — and their peers at the executive level — come to appreciate the strategic value of Web-based computing. Conceivably, the competitive ad­vantage will go to the early experimenters and early adopters, as they will have a head start on the learning curve and training these applications require. And that advantage, in both cost and strategic value, could be significant.

Author profiles:

Rodrigo Fontecilla (, a principal with Booz Allen Hamilton in McLean, Va., focuses on innovation and the impact of next-generation technical capabilities.
Steve Wardell (, an associate with Booz Allen in McLean, Va., specializes in design, development, and system applications for government agencies. 

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