Saugatuck Study Says CRM Technologies Are the Last to Be Outsourced

A new report by industry group Saugatuck Technology indicates that among enterprise applications, executives view CRM and related technologies as the least likely to be purchased as a monthly service or outsourced. The report, "Pay-As-You-Go IT Services: Where's the Business Value?", addresses the growing market for what is known as utility or on-demand computing, specifically focusing on its use for enterprise application software. The study ranks the various applications that are deemed likely candidates for being implemented on a pay-as-you-go basis, and further segments answers according to the respondents' position, industry, and business size. Saugatuck's survey was sponsored by a trio of vendors vying for subscription-model business within the enterprise software field: IBM, Employease, and Perfect Commerce. According to the survey, 70 percent of respondents are at least aware of the pay-as-you-go model for enterprise software, but only 20 percent say they are already using it. Dan Starr, CMO of hosted-CRM vendor Salesnet, was heartened by the awareness figure, and expects the user figure to close the gap significantly in the years to come. The study predicts that the proportion of respondents who will have pay-as-you-go software deployed by 2006 is 37 percent, nearly double the current figure. The report ranks 14 different enterprise applications, such as benefits administration, payroll, and accounts payable, according to the percentage of respondents who said they thought each one was right for the pay-as-you-go model. The applications at the top of the list are those that have historically been characterized as back-office systems; CRM and its customer-facing brethren are at the bottom of the list. As the report notes, despite the perceived value and initial successes of SFA providers "in selling [pay-as-you-go] services, there is still considerably more interest by user-firm executives on taking advantage of [pay-as-you-go] for more-established, more-familiar 'back-office' types of applications and systems. In other words, early [pay-as-you-go] implementations tend to be the types of IT and functions that have been outsourced for decades." According to the report's findings, CRM, customer service, and SFA are three of the bottom four applications--and therefore the least likely to be switched to the pay-as-you-go model. Fewer than 30 percent of executives said that they were considering any of those for a subscription model, with SFA dead last, at about 25 percent. But even within the subset of respondents who said they would consider pursuing the on-demand option for customer-facing technologies, the study notes that different kinds of executives have differing perspectives. According to the segmented results, finance and IT executives see customer service and sales force automation as a better match for pay-as-you-go services than line-of-business folks do; line-of-business employees and IT people see CRM as more opportune for a pay-as-you-go service than finance executives do. The report also draws a line between large enterprises and smaller ones. Larger enterprises adopt pay-as-you-go services at a higher rate than SMBs. Mike West, a cofounder of Saugatuck and the study's author, says, "SMBs really don't have the discretionary money for something that doesn't work,"--and that they feel is not yet proven. Salesnet's Starr says he's not surprised that switching on-premise CRM and related efforts to on-demand services are at the bottom of respondents' to-do lists. "It will be some time before customer support leaves on-premise," mainly due to the current state of network infrastructure. Support, he says, is too reliant on timely screen pops and available information to rely on third-party hosting. "But the networks are getting there." Some on-demand users, Starr says, opt for the model as a stopgap merely to tide themselves over until an installed version can be fully implemented. Some of these users, he adds, occasionally decide to forgo the installed software completely, once they see that the pay-as-you-go model is sufficient to their needs.
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