Hosted CRM Finds a Niche in the Enterprise

Hosted CRM providers like Salesforce.com, NetSuite, and Salesnet have long been seen as ideal offerings for small companies that need modest customer management functionality with minimal IT overhead and a small up-front commitment. Now these hosted services are showing up on the radar of the Global 1,000, and are seeing increasing uptake among large organizations looking to plug holes in their CRM deployments, either as a cost savings over additional licenses of a conventional CRM system or to improve adoption. "CRM used to be such a large purchase and effort. Many companies spent $30 million or more on their CRM implementation, only to find either that either nobody would use it, or it didn't do what they wanted, or their business had changed in the 18 months it took to implement," says Tien Tzuo, senior vice president of marketing for Salesforce.com. According to Tzuo, more than a third of the company's business is from organizations with more than $1 billion in revenues. "With on-demand CRM, companies can enter at whatever size and complexity they want to bite off, and grow from there," he says. "A great [example] is Sungard. Seven of its seventy divisions had implemented Salesforce.com separately. When the CEO got wind of it and decided that, now that it was proven, it made sense to do an enterprise wide CRM rollout across all seventy divisions." "That's exactly what [companies] are doing. That's their strategy," says Chris Selland, vice president of sell-side research for Aberdeen Group. "It's a classic software marketing strategy--quick time to being up and live, and a crisp value proposition that plays well if you can't wait and need a solution." According to Laura Preslan, research director at AMR Research, Siebel Systems will be directly affected by this trend. "Interestingly, a significant number of pure-play hosted deals have stemmed from large enterprises that have implemented Siebel, but whose users find it too difficult to navigate or whose CIO decided that it was too costly to roll out Siebel to additional areas," Preslan writes in a report on Siebel CRM OnDemand. "[O]rganizations of all sizes are increasingly choosing ease of use over functionality." According to Siebel's Rob Reid, group vice president and general manager, OnDemand, the company's on-premise solutions are the industry standard. But Siebel also recognizes that organizations have many varying needs. "Siebel's understanding of these requirements is what drove our delivery of the 'CRM for Everyone' strategy," Reid says, adding that with the launch of Siebel CRM OnDemand, the company now "provides on-premise and on-demand solutions to satisfy [these] different requirements." The catch is that for vendors like Siebel that offer both hosted and conventional services, the delineation may not be clear for customers. In fact, according to Preslan, Siebel may soon find that it is competing against itself in deals. Reid disagrees: "Siebel CRM OnDemand expands the marketplace opportunity for Siebel Systems," he says. "We believe that as much as 50 percent more opportunities will be opened up by expanding our solution set with CRM OnDemand. We are finding organizations that have rolled out our on-premise solution are now coming back and looking at CRM OnDemand for divisions that needed to hold down costs, or installations of CRM OnDemand for their partner network." According to Reid, some customers prefer the flexibility of adding users as their needs change or using OnDemand as a stepping-stone to implementing Siebel's on-premise solution. Hosted CRM vendors recognize the myriad opportunities within enterprises, as well. However, some analysts suggest that because many of the hosted providers have tuned their feature sets for the needs of small and midsize businesses, there may be some catch-up required if they intend to make a run at capturing more than just the incremental sales in large enterprise they enjoy at present. "Salesforce.com would not agree with me here, but hosted applications make a lot of sense for small companies, some sense for midsize companies, and don't make a lot of sense for large companies because of complex customer environments with multistage, multiperson selling processes," Selland says. "The delivery model isn't the problem, but [enterprise customers] need systems to handle that complexity," and that high-end functionality is still primarily found from entrenched, packaged CRM providers. "With our Enterprise Edition, Salesforce.com absolutely has the functionality to meet the needs of large businesses," Tzuo says. "Large businesses need integration, which we announced with sforce, and now over 500 companies integrate Salesforce.com to their back office. And large businesses need limitless customization capabilities -- in the last two releases we've given them the ability to define their own database schema, their own business logic, even create new tabs." For those larger companies that are adopting both forms of the technology, Selland has a final word of caution. "The risk for companies is that they can get fragmented and disjointed [using both hosted and traditional CRM] -- and the problem they needed CRM for in the first place was that they got disjointed."