Is on-demand CRM better than an on-premises solution? - No

Security, cost, integration and speed are key issues

Despite hosted hype, on-premise CRM remains relevant.


Face-off: Pros of on-demand CRM


These organizations tend to have rapidly changing business processes -- along with a host of legacy applications or third-party solutions that need to be integrated with the hosted solution.

On-premise solutions make it simpler for customers to integrate their own proven business processes, procedures, data and analytical solutions in the applications, thereby ensuring a better fit with their business.

Many hosted-software providers guarantee that customers can be up and running in 90 days; this is a compelling claim given that industry standards for implementing complex business systems ranges from months to years. There are two common challenges with this streamlined approach.

First, the "quick start" implementation generally leaves little room for real configuration of the system and may even exclude common difficult tasks, such as converting your data from your existing solution.

Second, the implementations do not generally give the organization enough time to learn about the application. Technology evolves faster than most human beings, and employees need time to work through complex business processes, especially the pitfalls and black holes during customer transitions across departments.

The streamlined approach will load some data and configure the application to support some corporate terminology, but will not typically include more complex data conversion, business-process implementation, custom analytical reporting, or integration with key legacy or third-party applications.

Cost is the leading reason organizations select a hosted vs. an on-premise solution. Paying per user per month can, in the short run, be an economic way of enabling an organization to get access to sophisticated functionality without the complexity required to install and maintain the solution.

But CRM and ERP solutions are not discarded quickly. The typical break-even threshold for hosted vs. on-premise solutions is between two and three years. In a recent comparison of several hosted vs. on-premise providers, the hosted solution was 1.5 times more expensive over a three-year term than a corresponding on-premise solution.

We typically encourage customers to evaluate the total cost of ownership over a three- to four-year term. That includes hardware and internal staff support and various financing options that enable customers to finance all project costs -- software, services and hardware -- over a fixed term that results in the customer owning the implementation when it ends.

One of the key reasons not to consider a hosted solution is integration. Traditionally, hosted vendors have provided limited integration options -- usually in the form of batch data loads and exports. While this has improved significantly, on-premise solutions still hold the upper hand when it comes to more extensive and batch integrations.

Solutions installed on premises offer a multitude of integration options -- directly with the database (ODBC, OLE DB), through middleware (BizTalk) or through the application layer (COM, Web services). Some on-premise applications even offer advanced business process workflow tools for managing application processes and integrating data from external applications into the core CRM or ERP solution.

One of the biggest issues with hosted solutions is what happens at the end of the contract. Most of the hosted-application providers offer the option for customers to receive a backup of their data, which, without some other application -- whether hosted or on-premise -- does not provide immediate accessibility. This is one of the greatest advantages of on-premise products: Even when the organization stops paying for support and maintenance, the software license provides the ability to continue using the application uninterrupted. Many customers with complex integrations and analytical reporting opt for an on-premise solution based solely on this fact.

So what is the right answer for your organization? Ultimately, it comes down to a question of business complexity and ROI. While products such as Salesforce.com make it simple for organizations to get up and running quickly, there is still a thriving market for on-premise vendors who can provide advanced functionality that can be adapted to support each client's best practices.

Richard R. Smith is the vice president of CRM strategy for Green Beacon Solutions in Watertown, Mass.

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