On-demand vs. On-premise - the business case

One consideration for the business case may be around the treatment of the investment. It may be that in your organisation, on-premise solutions are capitalised while on-demand is treated as revenue. It's always been a topic of debate as to what can be capitalised in particular organisations, but generally things that are bought can be (such as an on-premise application and its associated hardware) while things that are rented (such as a hosted, on-demand application) can't. This can be significant, and particularly for larger organisations the internal processes to get business case agreement can favour an on-premise solution.

In terms of the cut off point for on-demand vs. on-premise applications ( i.e., when does one become cheaper ) 3 years has been commonly used as an example timeframe. Organisations need to ask themselves, however, how likely they will be to require upgrades, further developments, and potentially organisational changes, all that can have a bearing on the system.

There is clearly a risk with an on-demand system that in years 2, 3 or onwards the monthly charge increases, and as you become more reliant on the system it is harder to move away from it. Although vendors will generally guarantee to provide the data for you should you wish to extract it and move it to another system, you may find this in an XML file which requires considerable effort to be imported to a new system.

Of course, migration from an on-premise solution will be just as difficult. One of the benefits of on-premise deployments can be the ability to customise them beyond many on-demand applications (which may not allow you to run custom code, for example, on their servers). This benefit, though, can make future upgrades and migrations much more difficult.

The choice between on-premise and on-demand is difficult. More and more, vendors (such as Siebel, Sage and Microsoft) are offering their products in both on-demand and on-premise guises (although it should be said that RightNow, which used to offer both, now only offers on-demand). This means that even if you choose a vendor, you may still have a deployment choice.

On-demand offers clear benefits for very rapid deployment of standard functionality. On-premise may offer the chance for enhanced customisation, and may fit with a desire to keep control of infrastructure. The major deciding factor, though, may be about how to treat the costs on the balance sheet.

Cantata has extensive experience of assisting organisations in the creation of business cases for CRM implementations.

Please contact us to find out more.

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