• February 4, 2002
  • By David Myron, Editorial Director, CRM and Speech Technology magazines and SmartCustomerService.com

To Host or Not to Host

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Who says the ASP model is dead? With CRM implementations becoming more comprehensive and the economy more dubious, some companies are turning to CRM-specific hosting providers as an alternative to the costly and time-consuming task of managing and maintaining CRM data in-house.

"Roughly 18 months ago hosting was really hot. Then it fell off the map," says Steve Bonadio, senior program director at Meta Group Inc., based in stamford, Conn. He cites several reasons for the falloff in the ASP industry: "customization, ASPs haven't figured out how to apply a one-to-many model to customers; trust, companies weren't willing to give up control of their data; and the security of their data over the Internet and inside the data center."

Today a new breed of hosting providers is cropping up with a different approach. Instead of trying to be like their predecessors, offering vanilla solutions with little customization and less consulting services, they are specializing in CRM specific applications.

"I'm going to the clients deep in expertise. I'm going to nail my customer's automation," says Wade Myers, CEO of Interelate Inc., an Eden Prairie, Minn.-based hosting provider of E.piphany Inc.'s CRM solutions.

A recent Forrester Research Inc. report found that over three years, a 100-seat traditional implementation costs roughly $760,000, while a hosted solution costs about $392,000. As a result, analysts are changing their views. Although criticized a year ago by an analyst for his specialized approach, Myers says, "Analysts have completely flip-flopped and are saying ‘You need to go deep in expertise.'"

As a result, midsize companies also are warming up to CRM hosting specialists such as Myers. "Now, there's a greater propensity for companies to consider hosting," Bonadio says. The lower cost and speed of implementation makes hosting "appropriate for midmarket companies with a green operation," he says.

Following are examples of a company that decided to have its CRM solution hosted by a third party and one that is sticking to its guns and keeping its applications in-house.

Keeping the CRM solution in-house enables more control and flexibility over the data.

In May 1999 SeeBeyond Technology Corporation came to the unfortunate realization that it was not practicing what it was preaching. As a b-to-b e-business integration company, one might expect that the software in its sales, support, and marketing departments would be working together like a well-oiled machine. That was not so.

Leaky Pipes
SeeBeyond was at the time a $55 million company with 360 employees and not prepared to support all of its clients. "The biggest problems were that we had imprecise and little sharing of information between departments," says Charles Gerlach, vice president of planning and financial analysis at SeeBeyond, based in Monrovia, Calif. "The sales pipeline process ran completely aloof from the support system, which was separate from the service department. There was no single place where someone could go to track consistent information on what we were doing with anyone of our 1,100 customers. We were like a plumber with leaky pipes. We integrate everyone else, but we had dysfunctional buckets of information within our own company."

That is when SeeBeyond executives realized it was time to have a corporatewide database. With its robust talent pool of e-business and CRM experts, SeeBeyond executives actually considered building its own CRM solution from the ground up. An internally developed system would have been layered on top of its existing Remedy Corporation tool set and Oracle Corporation database.

The other option was to buy a ready-made solution from a leading CRM vendor. From May 1999 to August 1999, SeeBeyond's management information systems (MIS) department led a vendor selection process by assembling a committee consisting of finance, quality assurance, support, marketing, sales, and professional-services personnel. The committee evaluated solutions from several companies and chose Onyx Software Corporation.

"We needed one solution that would accommodate everyone's requirements and needs," Gerlach says. "Remedy was probably the best in support at the time. Siebel was considered the hands-down sales-force gorilla, but weak in support. Clarify was viewed to have superior support, but weak in sales. For our requirements, Onyx turned out to be the solution that would meet or exceed our expectations. Onyx was the 90 to 95 percent solution for everyone involved in our company."

SeeBeyond executives had agreed prior to a vendor search that having its CRM solution hosted by a third party was not appropriate for the firm's needs. While the integration, management, and maintenance of an in-house CRM solution may include complications and surprises, the payoff is flexibility and control over the data.

"From all the different phases and rewrites of work flow we have made to our various modules, it has been beneficial for us to have an in-house MIS staff own the system and make changes as they were prioritized," Gerlach says. "An ASP model would have been restrictive to our ever-changing business environment." For SeeBeyond, having a bevy of knowledgeable e-business integration experts on hand made this possible.

SeeBeyond started its multiphased rollout of the Onyx system with its United states support staff in September 1999, which subsequently was replicated in its Europe and Asia/Pacific offices. The U.S. sales implementation launched in April 2000 and the U.S. marketing implementation followed in March 2001, both implementations also were replicated in SeeBeyond's Europe and Asia/Pacific offices. Each rollout had a multiphased approach with several procedural changes and work-flow functionality additions made along the way. As a result, each implementation took four to six months to complete, Gerlach says.

The new CRM system could not have come at a better time for SeeBeyond: The company was about to experience a year of explosive growth. SeeBeyond's revenue more than doubled in 2000 to $114 million and that is not all. In the same year SeeBeyond nearly doubled its staff size to more than 770 employees and acquired a total of 1,550 customers.

Overcoming Obstacles
SeeBeyond's sudden success did not come without complications. During the sales implementation senior management ran into some resistance from the field sales executives. The field sales team balked at switching CRM systems, fearing management's motives--the classic fear of big brother.

"The field [sales staff] was happy using their own contact management systems--Outlook, ACT, or Goldmine--and resented migration to a corporate database," Gerlach says. "There was a lot of sniping at Onyx as a sales tracking system, but it would not have mattered which CRM system was chosen, the field staff would have grumbled regardless."

Thinking back, Gerlach admits it would have been better to start the Onyx deployment with the marketing team, instead of the support team. That would have garnered more sales leads sooner, which he says, might have encouraged the sales team to see the value of the new system and make the switch sooner.

Nonetheless, the damage was done and SeeBeyond needed to convince its salespeople to see beyond their apprehensions. Without prompting, Onyx emerged ready to help. "Onyx swarmed us with customer-care attention when executives there learned that our field sales executives' user acceptance was troublesome," Gerlach says.

With Onyx's help, a user group consisting of people from MIS, finance, sales, and marketing identified areas in which SeeBeyond could provide added value to the field sales force. The recommendations culminated in work-flow changes, improving lead flow to the field, providing links from Onyx to internal and externally based competitive information and various business services. All the while, senior management enforced the use of Onyx. "We demonstrated to the field sales executives that we had bent over backwards to make the CRM system as least obstructive and hopefully valuable to them," Gerlach says.

While reluctant, the field sales staff began populating the database in a fairly timely manner, Gerlach recalls. Added pressure from the CEO to the sales managers about timeliness and accuracy of data "caused the world to change. The data improved considerably," Gerlach boasts.

With the management support and experienced staff necessary to implement CRM successfully, SeeBeyond was able to make an in-house application work. But for companies that don't have a large MIS staff or a comprehensive technology back-end, for example, hosting is the best option. And although companies like SeeBeyond would never consider hosting, the proliferation of companies for which hosting is the right choice has brought the ASP model to the forefront--for good.

Hosting helps a cosmetics dot-com put on a friendlier face.

When it comes to fashion, what looks good on television may not necessarily look good on you. That is why people often go to retail stores to comparison shop, mix and match, or get one-on-one attention from a salesperson. And that has been the key advantage to buying cosmetics in retail stores versus buying from Web sites.

But with the right partners, a knowledgeable staff, and the appropriate technology, a cosmetics Web site can be just as thorough as a local cosmetics guru can. Add to that improved customer psychographics capabilities, pre- and post-sales support, and now you have a customer for life.

Reflect.com LLC is using those strategies to solidify customer loyalty. The San Francisco-based e-tailer sells its own brand of customized beauty products, including makeup and shampoo, through its Web site, which lets customers tailor their own products by suggesting ingredients.

"We wanted to create a company that had a customer-focused culture," says Matthew Doyel, the senior director and chief CRM architect at the cosmetics e-tailer.

Facing the Problem
The challenge for the Procter & Gamble Company-backed dot-com is to match the beauty aid found at a local cosmetics retail store. "We're in the business of creating individual formulas for women, so we're interested in creating a one-to-one relationship with them," Doyel says.

To build that one-to-one relationship, Reflect.com's cosmetics consultants need to collect granular information from each customer, such as how much water she drinks, how much time she spends in the sun, and whether she wants a dramatic or subtle look for her eyes. Unfortunately, the company's customer-facing application was not robust enough to ask customers those detailed questions. "We could sit around the table and think about all the questions we should be asking, but we couldn't put them in a format we could use," says Ania Gauvin, Reflect.com's customer focus manager.

Moving beyond the individual sale, Gauvin also needs to collect information on buying patterns for each customer, such as what she buys, how often she buys, whether she is trying new categories. Gauvin also needs to track how that changes over time. Conducting that type of analysis in early 2000 proved not to be easy. At that time it took Gauvin, a database administrator, and an engineer nearly a week to collect the specified data, design a program to analyze that data, and finally do the analyzation. "There had to be a better way," Doyel laments, recalling the antiquated database and analytical tools.

That's when Doyel and his team began evaluating other options. Over a period of three months Doyel conducted an in-depth investigation, evaluating CRM packages from the likes of Personify Inc. and Siebel Systems Inc. He even considered a custom-built solution. In the end there were two main reasons he chose E.piphany. "E.piphany is an all-in-one solution," Doyle says. "And E.piphany, by far, had the most e-commerce experience."

Getting started
But selecting the CRM solution was only the beginning. Doyel now needed to figure out how to implement it. He opted to have a third party host his CRM solution, a difficult decision for Doyel, as it goes against Reflect.com's philosophy of maintaining control over its data.

"Reflect is a big fan of in-house solutions," Doyel says. In fact, he adds, "The relationship with [the hosting provider] is the only outsourcing agreement we have." But hosting the CRM solution makes sense to Doyel. "For us to hire people and get them trained on E.piphany would cost us a lot in time and dollars," he says.

So he turned to a hosting company that had the most experience with E.piphany: Interelate. "Interelate's technical knowledge impressed me," Doyel says. "We looked at doing it ourselves, but the real value is in the knowledge pool and the talent that Interelate already had."

With Reflect.com's decision to go with E.piphany's Enterprise Insight, Campaign Management, and Real-Time products, Interelate began customizing a CRM solution, thanks to its deep understanding of E.piphany products.

"Interelate did not change the functionality of the E.piphany software itself, however, it did perform custom work for us that enables us to do more than a standard, off-the-shelf implementation," Doyel says. "For example, Reflect.com uses segmentation models to look at customers through a number of different lenses. In addition to simple demographic information, such as age, income, city, state, Zip, we are interested in a customer's psychographic and life-stage states. [We need] to answer questions such as ‘What is important to this customer given the phase of life she is in now?' [With that information], we can create complex models based on numerous customer data points."

Putting the new CRM system to work, Doyel and his team tested a particularly gnawing issue for Reflect.com: the overwhelming amount of customers who would fill their shopping carts, then abruptly leave before paying.

The majority of customers who abandon their shopping carts need to be addressed within 48 hours. Otherwise, the probability of those women coming back to complete the purchase drops significantly. So Doyel contacts them with an e-mail follow-up letter. "We need to communicate with these women in a time period that is immediate, because [their experience at the Web site] is still top of mind. As a result, we have a much higher response rate," Doyel says.

Once the analytical tools identify the absconders, a tailored letter addressing issues specific to each customer is sent to help the customer resolve their concerns. "It has fundamentally changed the way we do business," Doyel says.

Prior to the E.piphany solution, Reflect.com's engineers would arduously deploy SQL queries for all specially requested lists to be prepared for these e-mail campaigns. The lists would be sent to an outside vendor and then mass distributed to customers. That process generally took a full day to complete, with a campaign-production rate of 50 emails per month. With the E.piphany and Interelate solution, however, every morning at 8:45 a.m., a system automatically starts processing lists and within 20 minutes the campaign is complete, sending 65 emails per day.

"In terms of cost savings and growth of our business, the system has more than paid for itself within the first year," Doyel boasts. "Our revenues have grown every single month and over the summer months. A lot of that growth was due to the specific analysis used."

Why Keep Data In House?
- Highly customizable
- More control of data
- Maintain data security and privacy?

Why Host?
- Young company
- Lack of technical expertise
- Do not have the financial resources to house and maintain the technology infrastructure

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