5 Reasons Choosing Hosted vs On Premise ERP Software is Like Choosing Between a Condo or a House

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I have recently joined the “house hunters” game and it occurred to me that a real estate purchase has some interesting similarities to an ERP or CRM software purchase. I could buy a stand alone house – much like buying a traditional on-premise software system. In this scenario, I have full control over my investment with lots of flexibility. But I am also responsible for all the maintenance and there could be many unforeseen costs.

Or I could buy a condo – much like buying a hosted/cloud/SaaS ERP software system.  In this scenario, someone else is responsible for all the maintenance, I don’t even need to think about it.  And agents are quick to point out the benefit of paying a “consistent, predictable monthly cost” for ownership.

Predictable monthly costs sound good- but it raised questions in my mind:

  • What if the monthly fees increase dramatically?
  • What if there are expensive special assessments we did not include in our budget?
  • What if the management company goes out of business, what happens to my investment?
  • How much control do I have over changes affecting my investment?
  • What do I actually own?

ERP and CRM Software buyers should ask themselves these same questions.

The first question we always hear from companies is “How much does new ERP/accounting software software cost?”  And the answer is usually, “It depends.”  Therefore, one of the main reasons companies choose a hosted software deployment model (such as hosted ERP or online CRM software) is the allure of “predictable monthly costs.”  When budgets are tight, and you hear horror stories of ERP software implementation costs spiraling out of control, the concept of predictable costs can be very enticing.  But there are a few points to keep in mind first:

1)      Fee Increase: It is not uncommon in Saas situations for the first year subscription fee to be heavily discounted.  This makes the first year costs are indeed predictable. But do you know what will happen after your first year contract expires? A customer may well see a sharp increase in their subscription fees in year 2 or year 3.  This information is not necessarily hidden from you, but may not be explained in detail. So a smart buyer will ask the question.  What is the cost after the first year? Is there a cap on the amount the charges can be increased? If I want to get out, what options do I have to cancel my contract and move my data?

2)      Unforeseen Expenses: With any software implementation it is very possible that “unforeseen” expenses could come up that were not included in the initial quote. Companies tend to think this will only happen with on-premise software implementations, but that is not the case.  Customization, training, additional functionality can all add expensive one time fees you had not expected.

3)      Unreliable Vendor: What happens if the vendor of your online software solution goes out of business? Or if there data center is destroyed?  What happens to your data and to the money you have already paid them?  Now, I am not saying that you will be left high and dry. I am sure there are contracts for this kind of thing. But you should at least ask the questions and read the fine print.

4)      Customization: When you buy a condo, someone else tells you what changes you are allowed to make.  When you have a hosted software system, you have no control over software upgrades.  Upgrades are done to accommodate the best interest of all the users, so they could happen at a time that is inconvenient for your business. Many of our Connecticut Dynamics GP accounting software clients prefer their own planning and testing periods prior to any upgrade.  This may not matter to you, you might just be glad someone else takes care of it, but at least you should be aware.

5)      Ownership: After you pay your monthly fees, you need to realize that you don’t actually own anything. You are subscribing to a service.  And in fact your contract may say that the software company owns your data too.  Just as in a condo, if you want to separate yourself from the group your only option will be to move! And migrating your ERP/CRM software can be much more painful than moving your furniture. 

Software systems like Netsuite (ERP) and SalesForce (CRM) are like condos.  They only offer one online deployment model. So if you like the condo lifestyle, which many people do, then this might be a good choice for you. No maintenance, no upgrades, no backups – everything is done for you.

The problem is that if you buy a system like this, and then change your mind because your needs change, you need to move.  And I don’t know which is more traumatic - choosing (and learning) a new ERP or CRM system or finding a new place to live.  Both of them require massive amounts of time, effort and adjustment.

On the other hand, if you choose Microsoft Dynamics GP or Microsoft Dynamics CRM software, you really do have the best of both worlds. Of course, there is the on-premise traditional version (the house) or you can choose an online hosted model (the condo). But if you decide either choice is not right for you in the future, you have the freedom to change at any time with just a simple data migration.

As for me, we decided that we are just “not condo people” (too many rules) and we are continuing our quest for the perfect house.  Although I certainly wish there was some option in the middle, like Microsoft Dynamics, that would give us the best of both worlds.

By CAL Business Solutions, Connecticut Microsoft Dynamics GP Partner and Northeast Dynamics Partner of the Year 2010

3 thoughts on “5 Reasons Choosing Hosted vs On Premise ERP Software is Like Choosing Between a Condo or a House”

  1. Thank you for the article! Many sources speak to the symptoms that result in ERP implementation failure but few speak to the root cause of these failures. The root cause has more to do with the wrong implementation strategy. Today, the majority of ERP implementations follow a traditional, “build-from-scratch” approach that is not adequate for implementing packaged software like ERP. What is required is an approach that addresses both the inherent advantages and challenges associated with ERP. Following are 10 principles to assist you in build the right ERP implementation strategy.


  2. Disagreed. If you own a house, it appreciates (except in 2007) and you won't need to buy a new one every few years. If you own software and servers, its value is gone after it is bought and then you need to buy new hardware and software every so often.

    Your analogy is cute but it doesn't really make sense. And most of your knocks on SaaS are all hypothetical. I could easily come up with just as many hypothetical situations for server based legacy systems.

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