As we know, the traditional on premise software giants like Microsoft, Oracle, SAP are now stepping up with hosted versions of their application. This allows customers to choose a flavour that they prefer. For example, let’s look at Microsoft Dynamics CRM. If a customer prefers to kick it old school they can buy the on premise CRM and install it on their own servers. Or they can opt for the hosted version which, is the same CRM but it runs off of Microsoft’s servers instead.

What some may not know is that Microsoft has a 3rd flavour. I like to think of this version as the hybrid model in Microsoft’s lineup.

The 3rd way to get Dynamics CRM is through a Partner-hosted solution. So instead of Microsoft hosting the CRM, the software is actually hosted, managed and supported by a Microsoft Partner. So imagine your company using Dynamics CRM hosted by another service provider, not Microsoft. These independent companies are typically Microsoft Certified Gold Partners. A Certified Gold Partner has most likely demonstrated a certain level of competence either through customer references, employee certifications or solution testing.

It’s an interesting model since the vendor isn’t actually hosting the software. At first glance this poses some interesting pros and cons.

Advantages:

An ISV typically specializes in a specific vertical and as a result, they can understand your business much better than the original vendor. Dynamics Live CRM (hosted by Microsoft) is a very generic, out-of-the-box solution. Most companies will have to make some minor tweaks to the application in order to fit their business. For other companies the implementation is not as easy. Companies with a very different business process will end up spending lots of money on consultants only to be shoehorned into their CRM.

On the other hand, a Microsoft Partner can add value by hosting a customized CRM. Even though it’s still the same Dynamics CRM; the solution is highly tailored to the requirements of your industry. For example, Sandhills Publishing hosts a customized Dynamics CRM for companies who buy and sell heavy machinery. Their solution is designed for this niche and it even integrates with Sandhills’ publishing system so that businesses can advertise on their publications such as Machinery Trader.

Disadvantages:

Most Microsoft Partners are comparatively smaller with often less resources. Only about 10% of the 70,000 partners at Microsoft make above $10 million in annual revenue. Some companies are still reluctant to keep their information on somebody else’s servers. Convincing these companies to trust a host smaller than a Microsoft or Salesforce.com would be incredibly difficult.

Finally an ISV is an independent vendor. If their system goes down your business stops running and you lose money. For a large company that could mean tens of millions of dollars. But it wouldn’t even be worth suing because your losses could be greater than the net worth of the Microsoft Partner (who’s hosting your CRM). And it’s probably safe to assume that Microsoft won’t bite the bullet for somebody else’s mistake.

That last point just made me realize that the Partner Hosted Solution will probably only be attractive for comparatively smaller companies. None the less, this model does present an interesting value proposition for specific niche markets.