There are few limitations of Dynamics CRM 2011 Online. Many of them are due to the nature of being on Cloud. In my opinion the advantages of being on Cloud far outweigh the small number of limitations it possesses.

1. Microsoft Dynamics CRM
2011 – Limitations of
Dynamics CRM Online Vs On
Premises
• Ashish Mahajan

2. Why Companies Prefer Dynamics
CRM 2011 Online
There might be many reasons why companies prefer Dynamics
CRM 2011 online. Among these the prominent are:
To avoid investing in the hardware and software required for
on-premises version. Also on-premises need a dedicated
team of managers, business analysts and developers to
maintain the whole CRM framework.
If an enterprise is small to medium scale, it makes sense for it
to go for Cloud version and pay only for the actual use.

3. Companies feel more secure on Cloud. Having their
Dynamics CRM database on Cloud might be safer because it
is constantly backed up without fail. Microsoft Azure has
many back-up and fail-safe mechanisms working round the
clock. It is seen that most threat to the data comes from
internal employees and this is not the problem, any more, on
the Cloud.
Another reason favouring Dynamics CRM Online is that it can
be accessed 24*7 and anywhere around the world. The
company employees only need an active internet connection
and Internet Explorer.

4. Why Companies Don’t Prefer
Dynamics CRM 2011 Online
There are reasons why enterprises never want to have the Cloud
version of Microsoft Dynamics CRM 2011. Some of the times the
companies move back from Cloud to on-premises Dynamics CRM.
Some of the prominent reasons are:
Slow internet connection in the countries where the companies
operate could be a major problem. One of the requirements is to
have an active internet connection. A fast connection always
helps.
There are some technical limitations to Microsoft Dynamics CRM
2011 online as compared to on-premises version. Companies would
like to have full control over the technical development around
Dynamics CRM 2011.

5. Companies and their management are still are not
comfortable putting their sensitive business and client data
on the Cloud.
Medium to large organisations don't mind investing in
hardware and software. These enterprises have cash to
employ people and set up an internal software department.
Many companies still like to stick to the old model of having
everything in-house.
If companies don't have their own in-house IT department
they prefer a local consultancy firm to handle their CRM
infrastructure. Companies still prefer to see someone
present physically as compared to having a virtual presence
in the cloud.

6. Limitations of Dynamics CRM Online
Vs On Premises
There are few limitations of Dynamics CRM 2011 Online. Many of them are
due to the nature of being on Cloud. In my opinion the advantages of being
on Cloud far outweigh the small number of limitations it possesses. These
limitations are:
There is a limitation to maximum number of custom entities that can be
created. Looking at the brighter side, this limitation is practically very
high. Rarely can any of the enterprise level CRM 2011 projects max out
this limit of custom entities.
You have to pay for every GB of database usage. If your CRM 2011 has
significant file attachment requirements then the database size could go
in terabytes. To minimise these costs, companies can use a document
storage solution such as SharePoint 2010 along with Online Dynamics
CRM 2011.

7. Dynamics CRM online doesn't support custom workflow activity
assemblies. The business rules and the functionality which you
intend to run should be put inside a plugin.
Fully trusted plugins are not supported. Whenever you create
plugins for Dynamics CRM online always test your plugins in
sandbox mode. Dynamics CRM online only support plugins to run
in sandbox mode.
Custom ASPX pages are not supported for customising Dynamics
CRM online.
Custom SSRS reports which are based on "TSQL and filtered
views" data sets are not supported. Dynamics CRM 2011 online
only supports Fetch XML based custom reports. TSQL gives you
much more flexibility as compared to Fetch XML.

8. Conclusion
I would like to emphasise that the limitations of Microsoft Dynamics CRM
2011 online are very few as compared to the many benefits it provides.
These benefits span from technical to financials.
You can have your own dedicated Dynamics CRM 2011 on Microsoft
Cloud in less than 5 minutes. You will be paying only for what you need.
You don't have to worry about backups any more. Microsoft hardware
and software setups will take care of backups.
You don't have to employ a team of CRM administrators. Microsoft team
will take care of all your needs.
On top of these benefits your whole Dynamics CRM 2011 infrastructure
sits on the solid foundation of Azure framework.