The latest trend in purchasing CRM software today is to not purchase it at all. Is this a good strategy?

The latest trend is to "subscribe" to web-hosted CRM systems that don't require (or allow) the software to be installed on your computer at all. In a nutshell, this dichotomy is described as cloud-based vs. on-premise.

Digression: a note about terminology.

Cloud-based = Subscription = Leasing = Renting

On-premise = purchased/owned/delivered/installed


First, a little history. In the early days of commercial computing, there were mainframes. For all but the largest companies, mainframe the cost of a computer would be prohibitive, so most companies did not own them. The only economically feasible approach to using a computer was time-sharing. We'd have terminals in our office that we could use to create and submit batch programs, and we'd get billed for each millisecond of cpu time consumed.

The next phase, as the cost came down, was that we could actually afford to purchase mainframes or mini-mainframes, and run them in our office in our on-premise computer room, typically something with a lot of air conditioning and a raised floor. Since we now owned our computers, how were we to keep providing cash to the computer maker? The answer is that we'd never really own the software for the computer... we would simply lease it. If we didn't renew our lease each year, we couldn't keep using the software.

Next came the advent of personal computers. For small businesses this would represent a great equalizer, being able to use computer resources formerly reserved for the big budgets of larger companies. And oh, by the way, we get to purchase and own the software! Purchasing the software was definitely seen as an advantage over leasing it.

(Another digression: Consider the context in which leasing the software was seen as "bad," relative to purchasing the software, seen as "much better." In the accounting world, big-ticket purchases are counted as assets, while small-ticket purchases are treated as expenses. Expenses are tax-deductible immediately, while assets can only be deducted over time, i.e. amortized. It's muddy (to yours truly, a non-accountant), but leasing allows the deduction immediately also, as the depreciation is built in to the lease rate. So there are a variety of considerations from a tax and accounting perspective that also need to be considered.)

Now consider the resurrection of the leasing model. does not deliver a product to you. It provides you access to its system for an annual fee. They call this a "subscription." Their choice of words is not by accident, but it's also not completely inaccurate. When you subscribe to a magazine, you get the use of it for the month, and then, it's pretty much useless (though of course it's true you could put it on a shelf or archive it for future reference or enjoyment). At the end of your subscription, you either renew, or you stop getting the magazine (or use of the software).

Watch your language! (please) sells its wares to salespeople, and they use a very non-threating word: subscription. Could it be that salespeople are more accepting of this turn of the language than the general public would be? We don't know for sure, but we're not entirely sure how to account for the fact that so many people/businesses are returning to the software lease (rental) model. The latest buzzword/description for this type of software useage arrangement is "cloud-based;" it still means "rental."

Rent vs. Buy

Do you rent your car? Why or why not? There might be some tax advantages to a business lease but, basically, if you buy your car, you accumulate equity in it and, eventually, you'll be able to own it without making payments on it. Your only costs will be related to things like insurance and maintenance. When you rent, the equity you accumulate is nil.

Do you rent you home? Why or why not? For decades Americans have seen home ownership as a highly desirable goal. After all, you'll be accumulating equity in your home and, eventually, you'll be able to own it without making payments on it. Your only costs will be related to things like insurance, taxes, and maintenance. When you rent, the equity you accumulate is nil. And since you don't own it, you're limited to what modifications or improvements you can make.

Cloud-based = Subscription = Lease = Rent = No accumulation equity

Why would you want to rent your software?

Other myths and fallacies

Total cost of ownership. They'll all show you plenty of spreadsheets "proving" that you'll actually save a lot of money because you don't have to buy a computer, you don't have to allocate part of your computer room for the computer, you don't have to hire a person to administer the system and, oh yes, of course, you don't have to buy any sofware. "But wait a minute... I've already got a server, couldn't I just install it on that?" And "my computer guys can do basic maintenance, like backups, can't they?" The answers are, usually, "yes," and "yes."

No configuration or training costs. Only if you do the configuration yourself. Which is true of on-premise software as well. Online training is generally available for on-premise products... just as it is for cloud-based products. Either way, you end up paying for what you get.

Automatic upgrades. "But wait... what if I don't want to upgrade?! An upgrade will require retraining of my staff to some extent, and I'm not ready for that yet." Too bad. Their upgrades are system-wide. That's the only way they can do it.

Security. The cloud-based vendors claim that your data is safe on their servers. It could be. But what's the average interval, in days, between press reports of some major bank, retail store, or credit card company having to cover its tracks because it's just been hacked?

Reliability. Your data is only as available as your Internet connection. This is not a negative if your internet connection never goes down. Off-line access to data may be an extremely limited subset.


You'll find a range of price structures available from one provider to another, and even within any given provider. As an example, take a look at, ranging from $5/month to $250/month. Realistically, the entry-level system for most small businesses would be their "Professional" product, at $65/user/month. That works out to $780 per year. Compare that to something like GoldMine or ACT! A 5-user package of GoldMine is $2995. You'd save over $1000 your first year of ownership!

Also, GoldMine is licensed "concurrently," meaning any number of users can share a "pool" of user licenses. GoldMine automatically regulates the logins and warns you when you've hit your maximum. Therefore, a 5-user license of GoldMine will typically server 6 to 8 users. Salesforce, on the other hand, is a "per-named-user" licenseing scheme, meaning each user who logs on to the system must have their own license. It's a subtlety, at first glance, but this seemingly minor difference in licensing could save you thousands of dollars per year.


It may sound strange coming from us, where we regularly push the envelope on CRM product usage, but the truth is, most users of CRM software mainly use just the basic features. Things like contact management, shared calendaring, etc., are well-worn time-tested features that pretty much just plain "work" whether you're using a single-user copy of ACT! or the Enterprise version of Salesforce. You can pay a lot more for your software, but when it comes right down to it, are you getting addition value for your money?