When will the 350 municipal employees of Stratford, Conn., upgrade to Microsoft Office 2007? According to David Wright, the town's IT department manager, the answer is: maybe never.

That's because -- like in any small municipality -- budgets are tight, and Wright simply doesn't think he can justify the cost of upgrading all users to Office and Vista, not to mention purchasing the requisite new PCs. Soon, he says, "what we'll be facing is a huge cost in updating our Microsoft Office environment to 2007, or going in a very different direction."

Accordingly, he's been evaluating numerous other options: Citrix and VMware to deliver applications virtually; adopting open source operating systems and applications -- "it's something that we're thinking about, quite frankly"; as well as Google Apps, which includes an online word processor, spreadsheet, calendar, and more. From a feature and compatibility standpoint, so far he thinks Google Apps "is just not there yet." Even so, "we're very excited about what Google is doing."

Wright isn't alone in his thinking. Analysts say many organizations are studying hosted, browser-based -- also known as software as a service (SaaS)-- office and collaboration offerings such as Adobe Buzzword, Google Docs (a component of Google Apps), ThinkFree, and the Zoho suite. Yet are these online applications, delivered on demand, full-fledged enough to truly meet users' needs, and if not now, when might small and midsize businesses adopt them in earnest?

According to most experts, currently available on-demand office applications are not quite yet full-featured and flexible enough to meet most small and especially midsize businesses' needs. "At this point, I still think it's a bit early to move to SaaS-based content creation and management," says Guy Creese, senior analyst for content management, and search collaboration and content strategies, at Burton Group. "However, I don't think the wait will be long -- by the middle of next year, I think, there will be some viable solutions."

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Of course, office and productivity applications are only one aspect of the SaaS phenomenon. Many small and midsize companies are already using SaaS applications like Salesforce.com and eBay, while consumers have embraced SaaS-based apps ranging from MySpace to YouTube. In fact, even search engines like Google and Yahoo! could be defined as SaaS apps.

The revival of hosted applications might have surprised IT managers even a few years ago, especially after the so-called application service provider (ASP) market fizzled. Since then, however, better technology and widespread broadband access has dramatically boosted business adoption of hosted software -- SaaS is essentially the next generation of ASP technology, with many improvements.

Today, Cambridge, Mass.-based Forrester Research estimates that at least one-quarter of all organizations outsource at least some of their IT infrastructure, whether it's using an on-demand customer relationship management (CRM) application like SalesForce.com, a managed security services provider, automated online PC backups, or even just hosted wikis. The driver, often, is the low barrier to entry, and appreciable cost savings of having someone else administer and maintain the application.