When On-Demand Is Worth Considering

Hosted software is nothing new. In the 1990s, hundreds of ASPs sprang up to offer customers enterprise software hosted over the Internet. But when the Internet bubble burst, many ASPs went belly-up, leaving customers in the lurch. But Salesforce.com focused on the niche need for sales-force automation, refined its technology and began racking up sales among small and midsize businesses that needed the functionality they could offer but couldn't afford the multimillion-dollar price tag that accompanied full-fledged CRM implementations. And as the number of expensive failures in the traditional on-premise CRM space grew, so did interest in expanding the hosted model beyond simple sales-force automation - to a full-fledged system that could give enterprises a holistic view of their customers and allow them to better target their marketing, sales and customer-service efforts.

Traditional enterprise software vendors soon struck back, attacking on-demand on the grounds that it wasn't scalable to more than 1000 users. But as it turns out, size is not what really matters in determining whether a hosted CRM implementation will be a success - it's complexity. And complexity makes it harder to implement a viable CRM package, regardless of whether it's hosted or on-premise. "It isn't a scalability issue," says AMR's Bois. "Typically when you're talking about an organization that will have more than a thousand CRM users, you're talking about a broad implementation that will touch more areas of the company and will involve more business processes."

Companies seeking to adopt established, standard practices on a particular function like sales-force automation are more likely to benefit from a hosted solution, while those seeking to implement highly customized customer-management processes would more likely value a flexible on-site option.

Take SunGard Data Systems, for example. For Bettina Slusar, SunGard's senior VP of global accounts management, opting for an on-demand solution in 2002 was a relatively easy decision to make. Although she had a user base of more than 1000 to consider, her plans to drive standard processes in the global sales function of her $US3.5 billion data-centre company led her straight to Salesforce.com. Having grown through more than 100 acquisitions, SunGard's scattered and independently operating sales force hampered the company's ability to get an accurate and timely enterprise view of the sales pipeline. In addition, SunGard was looking only for certain aspects of CRM - sales-force automation and some marketing and campaign tracking. So Salesforce.com was a good fit.

But Slusar admits it's not for everyone. "If you want one big system that's going to connect all the dots together - from talking to the customer to signing the deals to connecting to the accounting system - [Salesforce] is not the answer," she says.

IT support was also a factor in Slusar's decision. SunGard's business is built on running data centres for other companies, but there is no centralized IT function for internal support. "We never really seriously considered an in-house solution for this. Our sales force spans the globe, and administratively it would have been a big headache to maintain the application and keep servers up and running with people coming online in Hong Kong and Chicago," Slusar says. In addition, she says, there was "no comparison in terms of pricing". Traditional software would have cost $US18,000 per user over the course of a two-year licence, and though Slusar will not reveal how much SunGard pays for the Salesforce.com systems each month, she says the cost is "magnitudes" lower, ranging between $US1560 to $US3000 per user over the same period (not including training and customization).

When On-Premise Is a Better Fit

At Qosina, a medical-components distributor, the basic business need was the same as SunGard's: creating an enterprise-wide snapshot of the sales pipeline. Yet this much smaller company - $US25 million in revenue - chose an on-premise offering in large part because of the complexity of its business processes, according to COO Gerry Quinn.

The company had been using an old flat-file, DOS-based contact manager called Telemagic for years and, in 2003, was ready to replace it with a more modern, robust CRM package. Qosina, which markets its products (such as tubing, clamps and valves) through trade shows, catalogues and Web sites, has an inordinately long sales cycle as the components it sells are eventually incorporated into products developed in the medical and cosmetics industry. To encourage the purchase of its products, Qosina sends out samples of its 5000 products (some costing less than a cent a piece) at an average rate of 300 to 500 a day and up to 1000 a day after a successful trade show. For example, Qosina may provide samples during a customer's R&D process, and only when the customer's product is approved for production will Qosina make its big sale. Quinn wanted a dynamic tool to support the company's atypical marketing and sales process. "Our processes, while not totally unique, weren't anything that could be supported with an out-of-the-box package," he says.

Quinn looked into customizing a hosted solution to accommodate the company's elongated sales cycle, but ultimately rejected the idea because the company already had the technology infrastructure in-house to support an on-premise system (Qosina has hosted its own Web site for 10 years). Quinn also wanted to retain power over the application and the data in it.

Security concerns often can be a sticking point for CRM customers. "Will my information be secure in a hosted environment? Will I have access to it? Who will own it? Will competitors be able to view my customers? These are important questions," says Wayne Latterell, president and founder of CRM consultancy Portico Solutions. "Imagine - would you put your company's financial data on the same server as that of your competitors?" Some customers will be satisfied with the hosted vendor's security measures, while others may not want to risk it.

"We wanted more control," Quinn says. "We didn't want to put our sales pipeline out there in a hosted environment with someone else controlling the servers." He had heard horror stories about ASPs in the dotcom era, such as some closing their doors without giving notice to clients, leaving them with no system and no way to re-create one, and others selling the customer data they hosted. While he knows that most hosted CRM providers today are much more reliable, Quinn says, "putting our proprietary information outside our firewall, spam filter, intrusion detection and virus-scanning software would be putting a great deal of faith in the hosting company. We may not have the same global resources as larger hosting companies, but at least internally we can hold someone accountable."

Quinn looked at several CRM systems including Siebel, Saleslogix and Goldmine, but ultimately chose Microsoft CRM so that he could more easily integrate it with the Great Plains ERP package Qosina had put in place the year before.