Renting an online CRM system can remove many of the
headaches of an on-site installation - as long as concerns over
trust and accessibility can be satisfied.
Software as a service is one of the fastest-growing areas in IT
and the main area of interest is customer relationship management
(CRM) systems.
The importance of this approach to delivering applications is
underlined by the recent entry of SAP and Microsoft into the
fray.
CRM gained notoriety in its early years because the software was
not a traditional application with a focused job to do. The
packages were analysis tools, so the first question implementers
had to ask was what output they required and then to work out what
input would be required. Traditional software worked the other way
round, with the first question concerning the required input.
The range of online, or on-demand, CRM services available
underlines the problem. Salesforce.com concentrates on a sales
team's need for contact management; RightNow focuses mainly on
customer and in-house helpdesk requirements; and NetSuite targets
the small to medium-sized enterprise market by taking a broader
sweep, providing an integrated enterprise resource planning and CRM
system with added facilities for creating a website and online
catalogue.
The problem for the future is that all these companies are
showing signs of convergence as their product lines start to branch
from their single focus and embrace one another's core
competencies.
From a user viewpoint, renting software remotely offers the
chance to break free from the maintenance cycles required by
on-site applications. Concerns such as hardware provisioning and
maintenance, software upgrading, patching, securing and data
back-up become someone else's problem. This frees the company to
concentrate more on running its business rather than managing its
IT.
It also makes budgeting easier because costs are constant and
lack the spikiness of traditional software for which an upgrade has
to be bought and implemented every few years at the whim of the
supplier.
But the caveat here is that licensing is not a constant and the
small print must be studied to ensure unexpected price hikes do not
upset the year's smoothed-out budget.
Many companies could benefit from on-demand CRM, but the
strategy does not fit firms that are strongly vertical and have
complex or highly specialised business processes.
However configurable an online CRM system may be, it is really
designed for a specific job and adoption means a degree of
compromise between how a company runs today and how it will have to
change to fit the software.
To be fair, this usually means little change, but financial
institutions and petrochemical companies are unlikely to find they
can throw out their on-site CRM system. This does not stop them
implementing on-demand systems, but only as a point solution for
certain departments.
David Bradshaw, a principal analyst at Ovum, said, "On-demand
systems don't have vertical market capabilities. BT changed its
customised CRM system for an on-site system devised for the
telecoms market and found it could run it virtually out of the box.
On-demand has not yet gone that route."
But it may not always be this way. Suppliers are always looking
for new openings and currently seem content to copy features and
step on each other's toes. Once this phase passes, we may see them
look toward vertical markets to help grow their revenues.
One advantage for adopters is that most online systems can be
sampled on a "try before you buy" basis. The fact that no software
code changes hands means intellectual property is well protected,
so the companies can afford to be more open.
Setting up a test environment costs nothing but time, and
abandonment is probably less expensive than going through the
traditional software selection process.
Another plus is that on-demand systems are quicker to implement,
with most service suppliers claiming to be up and running in about
48 hours. Teresa Jones, senior researcher at the Butler Group,
said, "This contrasts with the big on-site CRM projects which take
a long time to set up and start.
"The result is that the company gets no value from its
investment for months and sometimes the original idea cannot be
implemented. Then there's the problem of upgrading."
Because on-site systems are so customisable, upgrading can be
more of a problem, especially if any coding has been added. With
on-demand systems, customisation is under the control of the
service provider and upgrading becomes easier because if a problem
emerges, the provider has to fix it.
The first concern of anyone moving to on-demand CRM is that
their data is often hosted on the provider's servers. This poses
two problems - trust and accessibility.
The trust element is aboutthe provider having sufficient
security in place to ensure the data is safe, not just from
external hackers but also from any co-hosted companies that may be
competitors. There is also trust that the data will be suitably
backed-up and retrievable if disaster strikes.
Bradshaw said users should not need to worry about the safety of
their data. "Such concerns are illusory. Salesforce provides better
data protection than many of its customers could provide
themselves. The idea that these customers could build a secure
datacentre with full back-up support is complete poppycock because
they lack the necessary resources to work to the same
standard."
Even the best-planned system is subject to disaster.
Salesforce's systems were hit badly in the US recently when a
principal server in its North American datacentre went down and
failed to reboot. The first outage lasted five hours and subsequent
outages were about one hour each.
It was all the more embarrassing because the company had
introduced a $50m fail-over system - Mirrorforce - last November to
increase reliability.
Chris Boorman, vice-president of marketing for EMEA at
Salesforce.com, said, "Customers expect availability, they expect
performance. We've had a couple of examples of outages, but our
European customers have been largely unaffected. We have also
created a website called trust.salesforce.com which details current
and past service status."
Both Jones and Bradshaw agree that outages are as much a risk
for on-demand systems as they are for on-site hardware.
Salesforce's challenge is to rekindle the trust element and CEO
Marc Benioff said the company will spend upwards of £500,000 a
quarter to constantly improve and maintain the system's
reliability.
Salesforce, like most other online CRM services, has a
service-level agreement that specifies a minimum of 99.5%
availability a year - or 44 hours' downtime annually. If this is
exceeded, penalties can be imposed by the users, but these vary
from company to company, and again the facts are buried in the
small print.
Boorman sees the trust issue as crucial. "When a customer's
trust is removed and they no longer obtain the benefit you want
them to have, they will desubscribe."
Desubscription is an issue that must be addressed before
implementation. On-demand providers always offer as a selling point
the fact that subscribers can cancel and move elsewhere if the
service does not satisfy their needs.
But it is not a simple matter to desubscribe and resubscribe. To
avoid disruption, the new service has to be overlapped with the old
one while data stored off-site is recovered and transferred to the
new CRM system.
The good news is that companies are so hungry for new business
that they will fall over themselves to help with migration and the
data-mapping it involves.
The bad news is that the outgoing service may constrain efforts
to desubscribe users. "I have heard tales of companies dragging
their feet and of e-mails that go missing or are ignored," said
Jones. "These stories are apocryphal, however, and not levelled at
any particular supplier."
The lesson is to think through the whole lifecycle carefully and
make sure that an exit strategy and a suitable timeframe are agreed
before the service is implemented.
Potential customers should realise the power they have, said
Bradshaw. If there are several hundred seats at issue, most
suppliers are willing to negotiate on monthly charges and
consultancy. The market is buoyant and competitive - and that makes
suppliers more flexible.
The profits of these companies are attracting the attention of
traditional software suppliers. Siebel, now owned by Oracle, has
been in the market for some time and was one of the first in.
Microsoft and SAP are only now turning this way and have both been
tempted to dip their toe in the water.
Microsoft has said it will not act as a host for its Dynamics
CRM product, but is leaving it to companies like Aspective to offer
hosted services.
SAP is also tentatively exploring possibilities but openly
admits it sees the online offering SAP CRM On-Demand as a ramp up
to its on-site package MySAP.
At the moment, pricing is at the high end of the market, with a
single module for the sales department costing a seemingly
reasonable £43 per user per month - about the same as Salesforce or
NetSuite. However, when two more modules - marketing and service -
appear later this year, pricing will increase to £71 for two or
more modules.
SAP uses IBM to host its service on a DB2 database. Julian
Johnson, SAP vice-president for CRM solutions EMEA, said, "SAP is
innovating the provision of software as a service by introducing a
new model aimed at enterprise customers. This bridges the gap
between single and multi-tenancy solutions.
"SAP has named this new model 'isolated tenancy' and it provides
each customer with a single logical template application. This
isolates customers from the type of system blow-outs that have
plagued multi-tenancy hosted CRM solutions which deny access to
many customers at once for extended times."
This is the battleground. SAP claims a higher level of security
for data, but the counter-criticism is that this allows it to use
software designed for client server architectures to be used
online, rather than modifying the software for multi-tenancy - in
which all users and applications share a single, common
infrastructure and code base.
"Some people worry about not knowing what the supplier does,"
said Jones, "but usually it's a case of whatever they do is a
darned sight better than what you could do yourself. SAP gives each
user their own instance and so you're less at the mercy of another
company that brings down the system with corrupted data on a
multi-tenancy system."
The suppliers will continue to bicker over the best approach for
on-demand CRM, but from the user's viewpoint, the main concern is
functionality, adaptability, configurability and cost.