Hot Seat: Will Price Win the Battle for the Customer?

Sheryl Kingstone, program manager for CRM strategies, The Yankee Group "While we will see many entrants at a lower cost, it is too soon for a price war and not in the best interest of the industry.... I am not seeing enterprises make [hosted SFA] decisions based on lowest price. I believe we are still in a value-selling mode since there are distinct differences between vendors."

Mike Doyle, CEO, Salesnet "CRM is too critical a business strategy to be determined solely on price. Companies don't build repeatable business on discounted software. As a result of low barriers to entry, everyone and their uncle has leaped into the on-demand CRM space.... Companies that can't deliver mature technology and sophisticated infrastructure offer price slashing as a way to get noticed."

Michael West, analyst, Saugatuck Technology "In today's buyers' market there is no substitute for price. Differentiation and custom service have not regained their appeal.... [Vendors] have to price aggressively to buy market share over the next six to twelve months, or else face elimination from the market. We expect to see the leading CRM vendors make acquisitions as hosted and on-demand CRM vendors begin to fall by the wayside."

Erin Kinikin, vice president, Forrester Research "Low-cost, hosted CRM solutions often just mean a lower cost of failure.... Vendors that add results metrics, quarterly best-practice health checks, ease-of-use features like Outlook integration, and prepackaged customization and integration for specific vertical industries will be the long-term hosted CRM survivors. It's not about price, [but about] value for the price."

Michael McCloskey, CEO, FrontRange Solutions "A price war in hosted CRM applications definitely is looming.... But [small- and midsize-enterprise] buyers value choice over price, because flexibility drives return on investment. [When] products are based on a common platform...companies can migrate easily between an on-premise or hosted solution; they can also have a hybrid solution that captures the best of both worlds."

Chris Selland, vice president of sell-side research, Aberdeen Group "A price war would be both stupid and self-defeating. Any company that buys on price really needs to ask itself the hard questions regarding why they are investing in CRM in the first place. I do expect some companies to compete on price--particularly new players...trying to enter what is already a rapidly maturing market--but I don't expect them to be successful."

Doug Laird, vice president, Siebel CRM OnDemand, Siebel Systems "Price wars are a nonissue--hosted CRM solutions are already competitively priced.... Value comes from solutions that are designed to solve specific business problems and offer the broadest and deepest capabilities, including industry-specific functionality and advanced analytics."

Elizabeth Roche, vice president, technology research services, Meta Group "Yes, [there will be a price war,] but it will only appeal to the small businesses whose needs are fairly simplistic, those that have 'lowest common denominator' requirements.... However, as requirements get more sophisticated price is less of a compelling issue. Not that it becomes a moot point, but other factors begin to be considerations, such as extensibility, migration, etcetera."

Timothy Chou, president, Oracle On Demand "Taking down the cost of computing is happening industry wide.... [But] price can never be the differentiator. Cheap is easy; building dependable systems that satisfy the business needs isn't."

Denis Pombriant, managing principal, Beagle Research "You can't really have a price war at $70 per seat. The difference between $70 and $20 is...small even if you have a lot of seats, because it covers hardware, software, and labor. The real competition is going to be on functionality and service, which is great news for the consumer.... The products [are now] so good it's becoming hard to pick in some cases."

Zach Nelson, CEO, NetSuite "Selection of a CRM system is based on functional needs first, with other criteria--price included--a distant second. It's about the value delivered. If all you need is to manage a simple forecast, why pay $125 a user...when a simple spreadsheet would do? But, if you want to track actual orders, pay commission to sales, incorporate your Web site into the selling process, deliver personalized customer service, and truly have a single, complete picture of your customer--now that's worth paying for."

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