Elie Ashery had recently launched his new company Gold Lasso. The startup used a Web-hosted service for customer relationship management (CRM) and accounting. Then one day, the service wasn’t working. “They were down more than 48 hours,” Ashery recalls.

For those two days, he and his three employees were reduced to keeping records and taking orders with pencils and paper. “It ground things down to a halt for a while.”

This was about five years ago, and today, a two-day outage from a major provider is a rarity. But, Ashery says, Web-hosted software customers should be prepared for the occasional interruption. “All providers have outages, from the biggest, like Salesforce.com, to the smallest.” Indeed, in December, 2005, Salesforce.com’s customers suffered through a day-long outage that the industry won’t forget anytime soon.

But, Ashery says, this does not mean on-demand customers would be better off hosting the software in-house. After all, many internal systems have outages, too. “Usually the providers are better at managing infrastructure, one of their core competencies, than you are,” he says. He’s in a position to know: Gold Lasso itself offers Web-hosted software that allows customers to send mass e-mailings to opt-in mailing lists.

Make no mistake: If you use Web-hosted software for anything important, you will see some level of business disruption if there’s an outage. But there are steps you can take to both reduce the likelihood of an outage and soften the blow if it does happen:

  1. Choose your provider with care. Before you sign on the dotted line, ask some tough questions about how long the provider has been in business, how its data center is set up (try for a site visit, if you can), and what its backup plan is in case of a disruption at the site where your data is hosted. This should be a written plan, and the provider should furnish a copy on request.  Also, make sure the provider has the proper certifications. The two most important are Statement on Auditing Standards Number 70, better known as SAS number 70, an auditing standard for service providers, and Payment Card Industry (PCI) compliance, which major credit card companies require to show the provider can securely handle financial data, according to Rurik Bradbury, vice president of strategy at Intermedia, a major hosted software provider. “It is not advisable to use a hosting company without PCI or SAS 70 compliance,” he says.
  2. Get the right contract. Don’t expect your provider to make up for business losses in the event of an outage -- most providers include indemnification clauses in their contracts and these “are often among the most fiercely negotiated terms in the agreement,” according to Joy Butler, a business and intellectual property attorney who often represents providers in contract negotiations. Do, however, expect a refund for any unplanned outage time—and the refund should be for more than the period of the outage. “For instance, an outage of an hour might be worth a day’s refund,” notes Rob DeSisto, vice president and distinguished analyst at Gartner.  He also recommends including guaranteed uptime in the agreement, with compensation if the provider fails to comply. “The standard should be that the service is up 99.7 percent of the time, excluding planned outages,” he says.
  3. Plan what you’ll do if the service goes down. Most experts recommend regularly saving your data to an in-house system as a backup in case the provider suffers a lengthy outage. Of course, your data may not help you much if you don’t have access to the application that uses it—but a growing number of providers are offering offline access to their applications as well, according to Rebecca Wetteman, vice president at Nucleus Research, Inc. “They’re allowing for things like using Salesforce on airplanes,” she says.

“Develop and rehearse procedures that will keep your key business processes going if you can’t use the Web-hosted system,” advises C. David Gamel, president of High Context Consulting, LLC.

This is great advice -- if you can do it. For some companies, it may simply not be possible to find a workaround if their hosted application stops working. Ashery, for instance, has seen his company grow since that outage in the early days. “Honestly, now with 12 employees, I can’t see us going back to paper for 48 hours,” he says.