Software delivered through a hosted model as a service, such as the customer relationship management packages offered by Salesforce.com and Rightnow, are becoming increasingly popular among businesses that need to roll out CRM quickly and at relatively low cost.
The products are generally licensed on a per use basis, and sold on the fact that they do not require expert IT knowledge to support applications and hardware.
But users should not under-estimate the resource requirements for deploying software as a service.
Michael Maoz, vice-president at analyst firm Gartner, said that while software as a service has proven benefits for organisations with simple requirements, it remained unproven for larger complex environments.
"Organisations with intricate requirements should not assume that they will be able to lower their total cost of ownership simply by moving to an on-demand model," he said.
One of the benefits of deploying on-demand applications is that it reduces the cost of having to invest in physical infrastructure, such as servers and storage, to support specific applications.
Software, in effect, is provided "on-tap", which is particularly useful for resource-strapped smaller companies. However, a number of larger users who have successfully deployed the system have warned that such applications require planning and business changes.
"Software as a service is not a magic wand - it does not solve all CRM problems instantly - and it does require heavy customisation, particularly where it supports complex processes," said Kimberly Jansen, CRM systems programme manager at Misys Banking Systems.
The financial software company recently deployed a Salesforce.com application to create an online portal through which customers could receive support from its operators worldwide.
The challenge Misys faced in migrating to the Salesforce.com environment was that each of its centres ran different support applications and lacked proper audit trails. There was also no clear ownership of IT systems, which meant business processes were loosely defined between international sites.
"We spent four months auditing our business processes across sites to ensure that the customisations we carried out on the application would map to end benefits," said Jansen.
The success of Misys' deployment of Salesforce became apparent when the number of calls to centres fell as customer use of the web portal rose. But Jansen said that had the company not spent time reviewing its operations, the deployment would have failed.
Thomas Ernst, a director at Deutsche Bank Securities which has deployed an on-demand sales support application, said, "The first lesson that users of on-demand applications will encounter is that while they are easy to turn on, they might not be as easy to turn off."
The reason for this is that heavy customisation can embed the application far deeper into business processes, thereby making the user more dependent on a single supplier.
Users also need to be wary that the contract with their supplier could be inflexible and force lock-ins, preventing quick cancellations.
"You almost certainly cannot just switch it off and cancel your subscription if you do not like it," said David Bradshaw, principal analyst at Ovum.
"In reality, most people sign up for a year or more in order to get a discount."
Bradshaw warned that lock-ins could result in the user relying solely on the security, back-up and contingency measures from the service provider.
Ernst said that it is up to the user to ensure they audit the provider's security measures and build in service level agreements against downtime. "If say, you use on-demand applications for taking orders from customers and there is a problem in the host's datacentre - how are you covered?"
Ernst advises businesses considering an on-demand application to inspect the host's insurance policy and look at the amount of insurance they have and what they are and are not liable for.
Another concern is that IT departments could become isolated from the procurement process. This could result in software specifications not fulfilling needs and requiring more expensive customisation.
Steve Williams, CRM manager at the Carbon Trust, a company funded by the government to help reduce carbon emissions, said, "Avoid any pressure to rapidly sign off customisation changes and involve your IT team in the evaluation."
In his experience, IT departments can help negotiate better contracts, which keep costs down by minimising customisations, while additionally ensuring the application meets the exact needs of the business.
IT can help to assess how closely the on-demand application meets business requirements. The IT department is also in a position to determine if the application needs customisation.
"By mapping the needs of your business alongside your IT department, you put a cap on the costs of revisions and ensure that the software on tap does not overflow," Williams firstname.lastname@example.org