Buying CRM - The Deployment Quadrants

By Steve Chipman

In the mid to late nineties -- the "early days" of CRM -- the prevailing technology was such that CRM was something that a company purchased and installed in-house. Server software was installed on a dedicated server machine and client software was installed on each user’s desktop or laptop.

A synchronization architecture allowed remote users or offices to upload their changes to a main server and then receive changes made by others back to their local database. When it came time to upgrade, machines had to be corralled from all over the continent and sometimes all over the world in order to have the latest version CRM software installed.

Starting in the early part of this decade, the pendulum swung almost completely the other way -- as a head-on challenge to the traditional approach. Web-based, multi-tenant, hosted solutions held the value proposition of: "start using immediately"; no software to install or maintain; and no upfront investment -- just ongoing, per user, per time period rental payments. This was, and still is, particularly attractive to startup companies that need to keep short term costs as low as possible.

While for many companies, a rented, hosted solution has represented an easy buying decision, the proliferation of multi-tenant CRM has also led to the misperception that browser based CRM and a perpetual license rental are inseparable -- in other words, that if you want a browser based CRM solution, you need to rent it.

However, renting is by not the only option for running a browser based CRM solution. In fact, it is becoming increasingly common for companies to purchase their browser based CRM solution and to either host the solution in-house, or to host it on a dedicated server in a data center.

This diagram - http://tinyurl.com/6zbfj6 - shows the CRM deployment quadrants. We will examine each one, in turn. Unlike some quadrant representations, the numeric values of the quadrants don't necessarily imply a ranking. For example, Quadrant 3 could be the best option for a given company.

Some vendors offer a solution that applies to all four quadrants, while others have a solution that only applies to Quadrant 2, for example. The advantage to working with a vendor that has a solution that is applicable to multiple quadrants is that you can start in one quadrant and move to another as your company's needs and circumstances change.

*CRM Deployment Quadrant 4 - Software is Rented and Run on an In-House Server

This is by far the least common deployment method, as most companies that choose run CRM software in-house also tend to also purchase the software.

*CRM Deployment Quadrant 3 - Software is Purchased & Run on an In-House Server

>Traditional Client/Server CRM
Client/server CRM falls into this quadrant. This option has had a great run, and is still thriving in some parts of the country and in some industries. In more brick and mortar parts of the country, many companies continue to deploy desktop-based solutions as end users simply demand the power and control of a Windows client.

However, in other parts of the country, such as the San Francisco Bay Area, with its IT and technology driven culture, new purchases of a Windows-based, client/server CRM solution are rare.

A client/server solution provides two major advantages that a browser-based solution cannot offer: The superior navigability of a desktop application and a fully, functioning, disconnected client when a connection to the Internet is not available. These relative advantages will decline over time with improved Web page navigability and with more ubiquitous Internet access.

>Browser Based CRM
A number of vendors have developed highly capable, browser based solutions that a company can purchase rather than (or as an offered alternative to) renting. This is a little known option, as the rented browser based solutions are the one that are getting most of the attention -- primarily through their successful marketing efforts.

Purchasing a browser based CRM solution rather than renting one, it should be noted, is not entirely without an element of ongoing cost. Most vendors will charge an annual software maintenance and technical support fee, which generally runs in the neighborhood of 20% of the original, non-discounted price of the software.

When CRM is installed on an in-house server, the soft cost of keeping that server running and up to date with patches and fixes needs to be considered.

One major advantage to installing CRM in-house is that integration to other, in-house databases such as an ERP/Accounting system is easiest when all the databases are on the same local network.

If a CRM server is in-house, behind the firewall, there is the question of user access from outside the corporate firewall via their browsers. Unless users are required to first connect to the network via a VPN (Virtual Private Network) connection, there is a level of security risk in making an internal Web server publicly available.

*CRM Deployment Quadrant 2 - Rented, Multi-Tenant or Rented, Dedicated Server CRM

>Rented, Multi-Tenant
Rented, multi-tenant CRM is one of the best marketed business technologies of all time. There is a tremendous amount of buzz surrounding SaaS or Software as a Service.

Vendors that offer only this deployment method have successfully convinced many CRM buyers that they’d be crazy to consider any other deployment methodology. This deployment option does make sense for many companies -- but not for all companies.

The following are some of the benefits to a multi-tenant CRM solution:

- Low cost of entry
- Few, if any internal IT resources are required for basic implementations
- It’s easier to walk away if the implementation is failing (unless the company is locked into a multi-year contract)
- Upgrades happen automatically
- A stable environment (99%+ uptime)
- The primary support channel is the publisher

While there are a number of benefits to the multi-tenant model, some companies are finding that over time, renting CRM can be like a variable rate home loan in a climate of rising interest rates. While there might be an incentive to sign a two year contract as a new customer, upon contract renewal, that incentive is normally not offered again. This results in two levels of sticker shock when the renewal invoice arrives after year two –- both a large lump sum and an increasing lump sum.

Even if the cost does not go up over time, multi-tenant does get relatively more expensive than a purchased solution at a certain point in time -- normally in the two to three year range.

Early multi-tenant solutions had quite a few limitations compared to on premise solutions, but this gap has narrowed significantly over time. However, for certain offerings, there remain some limitations in terms of customization, data access and overall application control.

>Rented, Dedicated Server
Some vendors that offer a hosted solution will also provide the option of running your instance on a dedicated server. This option provides an additional level of control over the application, and can allow direct access to the server.

*CRM Deployment Quadrant 1 - Purchased and Hosted in a Data Center

This quadrant represents the convergence of the fact that CRM buyers can now purchase a quality, browser-based CRM solution and the fact that dedicated server hosting is widely available. This is an option worth considering for companies that have the available cash to purchase software, but do not want to take internal responsibility for managing a server.

After a company purchases CRM software in this scenario, there are two, ongoing costs. First, there’s the annual maintenance and support fee mentioned above. Second, there’s the hosting fee for a managed server.

Keep in mind that in this scenario, only the server is rented –- not the server plus the application. Therefore, the monthly hosting cost is significantly lower. For example, while a hosted multi-tenant solution might be as much as $125 per user per month, a server only rental can be $20 per user per month or less –- a large difference over time.

>Application Control and Data Ownership
Because a company owns the software, it’s the company’s own data and the company and/or its CRM consultant has unfettered access to the database. This means anything that’s possible if the company had the application running in-house on one of its own servers is also possible under the hosted ownership scenario.

More important, the system can be fully adapted to match a company’s business processes, rather than a company risking an encounter with a random limitation of multi-tenancy that affects the ability to have a CRM system work the way the company does.

>Other Incremental Benefits
A solution in this quadrant provides all the well trumpeted benefits of multi-tenant hosting, and it also provides these additional benefits:

- No additional storage costs as the number and size of attached files exceeds a specified level
- No additional cost for test and development environments
- A simple database restore process can occur if something like an accidental mass record delete happens
- The ability to back up the database at any time – such as before a large data import
- Access to the back-end database for data transformation, integration and reporting Upgrades based on the customer’s timing, not the publisher’s timing

>Cost of Services
The cost of services with hosted ownership is similar to the cost with multi-tenant. Tasks such as: customization, data migration, and training, all take the same level of effort and resource commitment on the part of the customer and the company that provides the consulting services.

>Conclusion
CRM buyers have more choices than ever as to how to deploy a CRM system. Companies should evaluate the best option for both their short term and long term needs.

About the Author
Steve Chipman is founder and president of Lexnet Consulting Group, a CRM and email marketing solutions VAR based in San Francisco, CA.

Tags: Buying CRM, hosted, purchased