One of the fundamental decisions an organization faces in its choice of CRM software is whether to use an installed or hosted application. The right answer depends on the situation, and there are important issues to consider in each case.

Hosted CRM applications remain a minority in the CRM market, but their share is growing. This means that the ever-widening community of CRM users is finding both premise-based and hosted approaches to have some merit. The following are three considerations for each approach that will help an organization determine which might be the better fit for its situation.

Installed CRM Applications

1. IT Capabilities. If the organization seeks to install CRM software, it must be confident that it has sufficient IT capabilities to handle the installation and ongoing support. Of course, some basic small business CRM applications are designed to be easy to use right out of the box, but as the complexity of the application goes up, so do the IT demands.
2. Flexibility of Scale. Installed applications can be sensitive to changes in scale--that is, adding users beyond a certain number may be cumbersome, and some systems arent designed to go beyond certain limits. A company which expects to remain fairly constant in size shouldnt have to worry too much about this. However, a company which plans to grow from small to mid-sized, or perhaps which experiences seasonal fluctuations in users, may find an installed system lacks sufficient flexibility of scale.
3. Willingness to Commit. Purchasing software represents a commitment--not just the cost of the software, but the time and trouble of installing it. Unless a company has enough prior experience with CRM software to be confident that it knows what it wants, avoiding a big upfront commitment might be a good idea.

Hosted CRM Applications

1. Stability of CRM Organization. With a hosted CRM application, the user company trusts the CRM provider to house not just the software, but more importantly, the data. This means the stability of the CRM provider is an important issue. It is worth asking how long its been around, how large it is, and if is it one of the companies that is picking up market share in the CRM business.
2. Integration with Other Technologies. A small business CRM application may be able to operate as a self-contained system, but as a company grows, it may find the need to integrate its CRM system with other technologies. Hosted CRM systems, almost by definition, are not integrated with other information technology functions at the users end, but hosted CRM providers are making an effort to increase their compatibility.
3. Comfort with Security. Implicit in the outsourcing of data storage is the outsourcing of security for that data. Hosted CRM proponents like to point out that there have not been any data security incidents to date. Fair enough, but it is also worth remembering that hosted CRM applications are relatively new; most of their history has yet to be written.

Conclusion
Clearly, this is a choice with nuances that go beyond the generalization that hosting is primarily a small business CRM solution. There are considerations other than size, and an organization will make the best choice when it starts by examining its own plans and business strategies.

Sources
Forbes
InformationWeek
New York Times