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TCO and hosted CRM

My company is considering a hosted CRM solution, but we've got an internal debate going on. Some of the decision-makers are arguing that after three to five years "renting" CRM costs more than "buying" it. Is this true?
That's a great question and one that I expect more people will be asking over the coming years. Unfortunately, as is the case with many great questions, the answer is "maybe" and we need to peel the onion.

It's true that hosted applications are a lot cheaper to get and maintain than the conventional behind the firewall variety. And it's a fair question to ask if the graphs ever cross. They do cross but that's not the point. If you were to buy an application and run it in perpetuity at some point the hosted version would start costing you more in absolute dollars. But to make this an apples to apples comparison we need to keep in mind that everything about a conventional application wears out -- hardware, software, OS, networks -- the works. Most conventional customers that care to maximize their investment in support contracts will spend many man months every year installing the new release of their software. Hosting insulates you from those needs (and the associated costs) by constantly updating and improving the application, and upgrading hardware when necessary. When you look at it from that perspective you realize that the TCO or ROI calculation needs to be a lot more complex than simply analyzing starting costs. Though I have not run the numbers, my gut tells me paying by the drink will still be cheaper in the long run than owning and operating.

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