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Cutting Through the Confusion
The real distinction comes from the possibility for change down the road. Clients start with hosted or on-demand CRM with the intent of switching to an on-premises application later.
Posted Jun 22, 2004
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As the popularity of on-demand CRM increases, so does the confusion between the monikers for CRM software presented as a utility-type service and CRM served up as a hosted solution. The confusion, in part, is a result of the overlap between the two. The term on-demand CRM has, some observers say, muddied the waters surrounding the hosted model of CRM. Many business executives, and even many CRM industry insiders, have taken to using the terms hosted CRM and on-demand CRM interchangeably, creating a misunderstanding in the market. "Using a hosted model doesn't necessarily mean on demand," says Adam Klaber, partner and global and Americas CRM leader at IBM Business Consulting Services. "There's the hosted CRM market--and then there's CRM on demand." ASPs have long provided hosted services as alternatives to on-premise or installed software at the user site. Not only do ASPs like Surebridge (recently acquired by NaviSite) and Corio host CRM applications from such vendors as Siebel and PeopleSoft, they also operate data centers and deliver content. Many ASPs even market their services as a form of disaster recovery or business continuity. Hosted CRM software is purchased in full, up front, by the user organization. The user company owns the licenses, but the software itself is run on servers operated either by the vendor or an ASP. The partner simply hosts and maintains the software, delivering its functionality via the Internet, or across a virtual private network. The user company pays for any upgrades it chooses to implement, but is spared much of the overhead costs of the IT personnel required to run the system. On-demand CRM, also known as software-as-a-service, is presented in a utility model, like electricity. User organizations sign up to use the service, but don't own licenses. The pricing structure is the key differentiator, with some analysts referring to on-demand as a leasing, or a pay-as-you-go, model. As with a hosting partner, the on-demand provider can shoulder the bulk of the infrastructural and IT management burden, but the on-demand arrangement also allows end users to scale their use up or down as needs change, without having to build in capacity for peak times themselves. Customers can add or remove users at any time (according to their contract), and upgrades are usually delivered automatically to the vendor's entire customer base at no extra charge. The result is greater flexibility and a reduction in operational costs.
Salesforce.com, RightNow Technologies, NetSuite, and Salesnet are a few of the companies most well-known for delivering CRM software via the ASP model. Some of their services are Web-based, and users need only an Internet connection and a password to access them. Steve Bonadio, vice president, technology research services at Meta Group, counsels that these vendors' product lines can be self-limiting. They "have point products for the most part," he says. "None of them have the breadth and depth of the bigger guys"--all of which have on-premises offerings, and many of which are also beginning to offer on-demand products. Oracle is reinventing its hosted offering to allow for the multiplicity of user needs, recently changing the name of one operating unit from Oracle Outsourcing to Oracle On Demand. The confusion here is that customers don't pay as they go for the application; as with most hosted options, they purchase licenses up front. Instead, customers pay monthly per user for the management of the software--whether the software is hosted by Oracle or at a site the customer chooses. According to Tim Chou, president of Oracle On Demand, about 75 percent of his customers are running applications off equipment hosted by Oracle; the rest run them on their own servers or at a location they've selected themselves. In either case, the services fee for Oracle to manage and maintain the software is $150 per user per month for the Oracle e-Business Suite. According to Chou this is at least 50 percent less than the cost for companies maintaining licensed software. Both hosted and on-demand CRM remove much of the burden of infrastructure and management costs from the end user. As IBM's Klaber says, the value "is from a cash-flow perspective--you don't have to drop down at the beginning of your project for new infrastructure and applications to gain access to the CRM benefits." The real distinction comes from the possibility for change down the road. Klaber, for example, says he's had clients that start with hosted or on-demand CRM with the intent of switching to an on-premises application later. The differences and overlaps between hosted and on-demand CRM may continue to trouble customers for some time to come, but in the end, Klaber says, what's most important is to remember that CRM is "not something you bolt on. It's a strategy and a way of doing business." Related Articles: Hosted CRM Finds a Niche in the Enterprise Hosted CRM Moves to the Mainstream Hot Seat: The Demand for On-Demand CRM Is Hosted CRM Foreshadowing Next Business Wave? The Demand for Hosted Service Offerings Is on the Rise
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