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.