We submitted this question to our analyst team to get their collective opinion. Read on to find out what they had to say.

Leslie Satenstein
With the advent of several “technological changes,” it hardly matters (from a performance point of view) if your CRM package is local or remote.

• Operating systems are becoming less and less important for hosting desktop applications.
• High-speed (fiber) connections are becoming increasingly low cost and widespread, suggesting very rapid display updates.
• Mobile access is becoming increasingly significant.
• Any operating system (Mac, Linux, XP, Vista) that can host a Web browser can be used as the application interface.

CRM hosting is a business that allows one company to provide an application at lower cost than having the same application executing on a local system. The support costs are shared amongst the clients and the host, the licensing costs for the host are lower because of economies of scale, and the client thus benefits.

Remote hosting does and will work for most companies because the data to be hosted can be historic (one day or more older). Therefore, the selection of a CRM application is just based on the distinction between competing hosting vendors and local package vendors. It comes down to mainly ergonomic and business function considerations.

Only when CRM data has to drive sales, marketing, or HR is it necessary to install this functionality in house.

Hosting advantages

• No software investment—just license for each user and, of course, costs per client registered. (Got to make money somehow).
• Salespeople on the road can use the BlackBerry to fetch information.
• Not sure that a CRM hosted product demand can be automatically converted to a sales order. The reverse is possible, however: sales order info can be uploaded to CRM host.

Jeff Spitzer

Advantages of an On-demand Solution

There are many benefits to using an on-demand solution. The most important benefit is that organizations can minimize the amount of resources applied to IT, thereby allowing for a greater concentration on their core business.

As such, an on-demand solution has appeal for the following reasons:

• there’s no need for infrastructure or specialized IT staff
• software upgrades are done automatically on a regular basis
• Web-based systems can be accessed 24/7

On-demand solutions are easier and faster to implement because they are Web-based applications, and therefore it is not necessary to install any software. All data can be accessed from any computer, anywhere in the world, that has an Internet connection. Generally speaking, in the short term, on-demand applications have a much lower setup cost, since an operating system license is not being purchased for each workstation. On-demand applications are billed as a recurring service, either in monthly, quarterly, or yearly billing cycles. The payment cycle is dependent on what the vendor is offering and the organization’s negotiating position. The lease costs can be allocated as a business expenditure, and your organization can get a tax break by leasing out the software, as opposed to the on-premise model which must be amortized over a specified time period, depending on the cost of the software.

An on-demand provider may be able to offer its clients a more sophisticated security system than each individual client would normally be able to afford. This is because although each client pays a relatively low monthly fee, the combined revenue to the provider gives it the financial ability to provide a quality of security comparable to that of large organizations.

Disadvantages of an On-demand Solution
Since an on-demand solution relies on a third-party provider, it puts your business at its mercy. If a vendor goes out of business, there will be a substantial amount of work involved in finding another solution, with a resulting loss of productivity during staff re-training.

There are also security concerns that are particular to an on-demand solution. Your data resides in an external data center that your organization has no control over. Security breaches and natural disasters such as earthquakes and flood can occur, potentially causing the loss of your data. That’s why it’s important to find out if the service provider offers a plan of action to protect your data, known as a redundancy, where the data is stored in a second location, providing a backup in case the data in the first location gets lost or corrupted.

Since an on-demand solution is a pay-as-you-go service, users do not own the rights to the software; it is being leased out to the client, at a premium in cost because of its convenience, ease of use, and most importantly, its limiting the need for an internal IT presence. Several licensing options that have a buy-back clause as part of their agreements are available, but this option tends to be more costly over time compared to an on-premise solution.

Alex Hankewicz

Companies operating in the SMB sphere may prefer the hosted solution based on the following information:

• Cost appears to be dropping—a recent study by Yankee Group estimated that a company with less than 150 employees would have to invest $1.5 million (USD) to achieve traditional CRM with all the bells and whistles—a sizable investment.
• A hosted solution can cost you about $50,000 (USD) per year—you have all the support you require, with customizable look and feel.
• Without in-house technical skills to support CRM, an on-premise application may take limited resources off other more pressing concerns. This is especially true in the SMB market, where resources are scarce.
• If you have a hosted solution, you can claim its cost as a business expense on your taxes.

David Bourque

What Alex mentions is true. However, let me make the following comment:

If your organization is either large or a bigger SMB, then an in-house system will probably outweigh the costs of a hosted system. In the long run, hosted solutions are strictly run from the provider’s servers, and clients must pay the service fee if they want access to use the system. With a hosted solution, this issue is not inherent when procuring the solution. As well, larger firms will want a more complete CRM package, including features such as analytics, sales and customer forecasting, etc. Thus, there are many advantages to an in-house solution for organizations in the call center environment.