It's popular, but not necessarily better.
Posted Nov 13, 2007
Today, businesses have many options when it comes to selecting and implementing a CRM solution. Over the past few years the hosted, rental model has gained popularity and a lot of press and industry attention. Many vendors in the hosted rental space are claiming enhanced benefits over in-house CRM software systems. However, is hosting really all it's cracked up to be? Are the hosted companies overhyping this business model? Are industry pundits making claims that can't really be verified?
There are certainly benefits with both the on-premise and hosted systems for different types of companies. However, it's important to consider many factors and separate fact from fiction before deciding on the right solution for your business.
Renting Versus Owning
The biggest difference between the CRM models today is pricing. Time and again I've seen executives from hosted-software companies claiming the cost of ownership on a rental, hosted system is far lower and a greater value than actually owning the software outright. Let's take an honest look at the costs involved in both models to get an accurate picture of which model is a better value.
With a rental, hosted solution, business owners will be paying a monthly fee for as long as they use the product. This means if a company uses the rental software for 10 years, you are paying a monthly rental charge every single month for 10 years -- it never ends! In addition, companies typically must sign a contract with the vendor which is often a one- or two-year agreement. Then, usually before the contract's expiration, the sales representative from the vendor will be putting on the pressure to re-sign another contract for one, two, three, or more years. If the solution does not work out, a company is stuck with the product for the remainder of the binding contract. In that event, you'll be paying monthly fees even if you're not using the service.
So how does the pricing on an on-premise software system work? Most important, you actually own the software -- it's not a rental. You either pay a one-time license fee for the software up front (which may also potentially offer significant tax advantages) or you can lease the software through a monthly payment over a term that is typically three to four years -- after which you own the on-premise CRM software system outright, with no future payments due.
One you rent and pay for forever. The other you actually own and own it forever -- no further money out of your pocket each month.
Also, be very aware of low introductory fees offered by rental, hosted vendors. Many of these vendors offer very low monthly fees that look like a great deal in the beginning. However, be sure to compare apples with apples: Most times, these introductory prices only include basic contact management features with very limited or no customization options. Once companies realize this, they'll need to upgrade to a different flavor of the hosted system in order to meet some of their core requirements -- which of course will cost a lot more money.
Cost of Implementation
This area is the biggest myth in the CRM space. For some reason, many hosted, rental vendors try to claim that the cost to implement their systems is far less than that of an on-premise CRM system. If a company needs to add five fields and a new screen to a CRM system, these needs are the same whether they go with a hosted system or an on-premise system. So how is the cost for doing this less expensive for one system over the other? Thanks to the pretty good toolkits most vendors have these days, the cost quite simply wouldn't really be any different.
The only plausible explanation that some vendors might give is that the configuration toolkits that some hosted vendors provide are still limited. If you can't really customize or configure the system -- well, there really wouldn't be much of a cost in not doing something.
It doesn't really matter if it's screen configuration, adding in workflow, integrating a CRM system with an ERP or accounting system, etc. The cost to implement is all relative to what your company wants to do -- and in that sense it doesn't matter if it's a hosted, rental system or an on-premise system.
Integration -- Your Data Has to Travel Where?
Savvy companies often will want to make sure their CRM solution is an end-to-end solution and is integrated seamlessly to other key corporate data including financial, accounting, and ERP systems. There are certainly many tools and techniques out there that support integration with both rental, hosted systems and on-premise applications. Many on-premise CRM vendors build these integration tools directly into their system so you don't need a third-party system to accomplish this. However, when you start considering everything that needs to happen to integrate a rental, hosted system with your internal accounting system sitting on a server down the hall from your office -- it might make you a little dizzy.
It ends up being much simpler with an on-premise CRM system. Typically, the data is all at the same location -- whether it's CRM data, accounting, financial management, ERP, etc. Many of the on-premise vendors have internal tools to integrate these systems on a real-time basis; you won't be worrying about what state or what country your data is traveling to just to let you access it in your own office.
About the Author
Jon Zimmerman is president of Oncontact Software. For more information, visit www.oncontact.com.
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