On-Demand CRM: Is it Right for Every Company?

Amid the hype and a burgeoning customer base, on-demand CRM has become all the rage. But as with any CRM deployment, potential users still need to weigh the relative merits before deciding if on-demand is appropriate for their organizations. A recent report by Steve Bonadio, vice president of technology research services at Meta Group, suggests that users aren't seeing the full picture, and that the promise of the hosted model may not pan out for everyone. Some companies, he says, are mistakenly declaring that they could never do an on-premises solution, due to the cost. "They're deciding on price," he says, "but [CRM] is too strategic for most companies to do that." Bonadio's contention is that during a comparison of two parallel five-year CRM implementations, one hosted, and one on-premise, the hosted version will remain the better deal for only a limited time. At some point, according to Bonadio's figures, the on-premise solution becomes more cost effective--assuming the company in question is really suited for either approach. Several people with experience deploying both kinds of CRM say Bonadio's conclusion may be valid, but that the time frame may vary. "If I keep a CRM application running for five years, there's some point in there where [cost effectiveness] crosses over, but there's no way to know where that point is," says Adam Klaber, partner and global and Americas CRM leader at IBM Business Consulting Services. Some companies prefer to pay as they go for accounting reasons. But whichever pricing model is the most appropriate, companies must consider much more than price when selecting CRM tools. In fact, Bonadio says the goal of his report, entitled "Hosted CRM: A Great Debate or Much Ado About Nothing?," was "debunking some of the hype and getting clients down from Cloud 9." He says anyone pursuing a hosted solution needs to ask some very fundamental questions that he says aren't being asked in the current excitement: What are my needs? Do I have growth concerns? What are my IT constraints? Only then can an organization properly make a decision about whether the hosted model is appropriate. Bonadio says that it's important that the decision be based on "long-term drivers and business objectives," and that these have to be determined prior to any kind of technology investment. An on-demand CRM solution, according to the vendors who offer it, can address many of those objectives, and can provide serious cost benefits for the companies that can handle it. Greg Gianforte, CEO and founder of RightNow Technologies, for one, says that an on-demand solution will "save 80 percent of the ownership costs, and get the system up and running in weeks, rather than months." And some still see the hosted providers serving an important function, whether on-demand is involved or not. "They're providing alternatives for companies to use the newer CRM technologies," Klaber says. However, Bonadio believes there are shortcomings with on-demand that will never entirely disappear: "No matter what, hosted applications will never be as configurable or customizable as the on-premise solutions." He says the biggest knock against ASPs is that "the hosted guys have point products for the most part, and none of them have the breadth and depth of the bigger guys." But that's not surprising: "Of course they don't--it took the other guys years to plug their holes." Gianforte acknowledges Bonadio's point, agreeing that "it takes time for applications to mature," but he says that's already happening. "Our customers are running mission-critical, highly complex business operations on our solutions today," he says. Tim Chou, president of Oracle On Demand, asserts that the on-demand model simply provides "more flexibility, and more choices, [with] far lower cost and far better service." Joe Outlaw, president and chief analyst of Outlaw Research, agrees. "On-demand applications are built to be configured and messed with," he says. "You can change them." For companies with limited functional needs and limited capital, on-demand remains a viable--perhaps even the most compelling--choice. As Gianforte asks rhetorically, "Since when have companies had excess budget and extra time to wait for solutions?" Related Articles: The Hidden Costs of Hosted CRM Cutting Through the Confusion
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