Summary

On-Demand CRM hosting is faster and in a short run is cheaper. Before you choose an approach, you should figure out which factors are most important and develop an honest appraisal of where you are in the CRM adoption process, especially in the matter of deciding whether to buy CRM licenses or pay On-Demand CRM provider to host it for you.

If you decide that On-Demand CRM provider is your choice, there are a few general rules to consider. First, at the beginning (up to two years) On-Demand CRM hosting is usually much less expensive and much faster to implement than buying and installing the software yourself. You can save up to 80% by external hosting, according to the industry analysts. These savings accrue in several areas -- such as labor and hardware -- in which the on-demand application service provider (ASP) provides resources for you. Going with an on-demand provider also saves time, since it takes a lot longer to build the entire CRM infrastructure yourself than it does to plug into a vendor that's already up and running.

Another reason for the lower prices, though, has to do with economies of scale. The profitable external hosting service makes money, in large part, by providing the same features and functions to as many customers as possible. You can't change the source code to do anything really complicated, as you can with software that you buy outright.

At this time you’re making a decision about whether an external CRM on-demand provider has built an application that is sufficiently configurable for your business needs. If not, your another solution is use on-premise CRM provider.

Generally, it is a good idea for business units that are just beginning to implement CRM to try the on-demand ASP CRM route first. With this approach, business unit can figure out if CRM as works for them. If it is, the next approach would be to go on and buy their own software that they can use in-house and customize. But if CRM doesn't work for their business unit, it would be a good idea by trying an on-demand service first.

A third major factor is, of course, the size of the business unit because the small and medium-sized business unit will do better with on-demand ASP CRM vendor than do larger business unit, because their CRM processes are often simpler.

In general, privacy and security are no longer major problem among On-Demand CRM providers, many of industry analysts agree.

The data is the only issue if you want all your data held by an on-demand ASP CRM vendor. One day you’ll decide to stop doing business with your on-demand ASP CRM vendor, or another company will acquire your CRM provider. You must have a very comprehensive service-level agreement that will specify the disposal or return of your data and in what format. A good SLA will also address privacy concerns and the amount of allowed downtime. In case of in-house ASP CRM provider all those problems do not exist.

Traditional software creates massive risk in many forms for customers and, therefore, is no longer the ideal corporate option. On-Demand CRM minimizes risk across all aspects of deploying a CRM application.

• Implementation risk: On-Demand CRM can be implemented in 30-90 days. In comparison, traditional on-premise implementations are typically 6-12 months long and have many cost overruns and technological complexity.
• Operational risk: Users are no longer subjected to infrastructure hiccups, down times, security breaches, and release cycles. All this is handled by Salesforce.
• Financial risk: The total cost of Salesforce is constant and predictable. The cost of traditional software is inherently unpredictable and therefore adds volatility and risk to earnings.
• Technological risk: Companies will not be buying a proprietary code base to manage and upgrade. All technological support, maintenance and upgrades are handled by Salesforce. Thus, all technological risk is eliminated.

Market Place

CRM On-Demand business model is predicated on one concept: use Web technologies to deliver an instantly deployable business solution to real business problems rather than the past model of installing software that made tremendous promises but placed the significant burdens of maintaining the total solution and ensuring results squarely on the customer. As simple — and attractive — as it sounds, the on demand model has been fiercely resisted by the traditional technology industry. Software vendors have done their best over the last couple decades to provide valuable solutions to customers. However, the archaic system architecture rendered the investment worthless for most customers. The failure rates and hidden costs of software implementations have become common knowledge, and a significant percentage of the market has simply stopped purchasing products designed this way. Many studies have been done on the efficacy of the traditional software model. Some of the key data points are:

• Fifty-five percent of software CRM installations fail (Gartner)
• Installation and customization typically cost two to six times the software license price (Meta Group)
• Cost overruns of 100-200 percent are typical (Accenture)

Since it first came on the scene, SaaS, a software distribution model in which applications are on-demand by a vendor or service provider and made available to customers over a network, typically the Internet. The idea of getting high-end business software via the Internet -- pay as you go via a credit card, seems a natural fit for the many small and medium size businesses.

The ability to pay for capabilities as needed is the main factor encouraging businesses to use the remote software delivery model. Adding new users without difficulty and easing the workload of the IT staff are factors nearly as important for medium-sized and even larger businesses.

According to Stamford, Conn.-based research firm Gartner, the global SaaS market is expected to grow to $19.3 billion by 2011, tripling in size from the $6.3 billion it was in 2006. IDC predicts SaaS will make up 30 percent of the software market by 2007 and will be worth $10.7 billion by 2009.

Gartner polls found that interest in SaaS has jumped to more than 40%.

Additional Observations

Essence of external CRM Hosting

Traditional CRM comes with hardware, software and, oftentimes, the headaches associated with protracted installations and integration snafus. On-Demand CRM offers an alternative: buy access to software on a subscription basis and log on to the apps via the Internet. But the external on-demand model presents its own separate set of challenges (see below):

Common concerns about external On-Demand CRM

There are a few pitfalls to watch out for if you're considering an on-demand application:

Security and stability:

How secure can an application be if it doesn't live on your servers? In many cases, vendors offer better security than a lot of small, medium and even some large organizations can afford to do on their own. Service-level agreements stipulate the physical, password, data and access security of the applications, as well as specifying how much uptime the subscriber can expect from the system.

Integration:

On-demand vendors are only beginning to tackle integration issues and are showing great progress. In case of Salesforce Apex Exchange provides the excellent and inexpensive integration model.

Wireless access:

Especially for sales force automation, "the big drawback" for on-demand vendors used to be the absence of versions that could be used in the disconnected mode. That started to change within the last year. All of the major On-Demand CRM vendors are working on or have already delivered a disconnected version. Now, sales reps can download data before they leave the office and have it with them on sales calls.

The future:

With many glitches behind them, external on-demand vendors are moving from their initial area of concentration of sales force automation to developing full-function CRM suites, including financials. External CRM vendors are changing their approach moving toward a time when it would be very easy to have software delivered as a utility.

External ASP CRM - Customization restrictions

Salesforce offers very flexible architectures that enable users to dictate the attributes and behaviors of the system at a high level without programming.
One benefit to fewer customizations is ramped up rollout times. For some companies, initial implementation could be nearly instantaneous -- start-to-finish in one week.

External ASP CRM - Cost savings

External On-Demand CRM is largely viewed as a cheaper alternative with a simpler pricing structure.
Research companies show that on-demand solutions can be as much as 80% to 90% less expensive. Also, end-user companies don't have to worry about complicated software licensing plans or costly software upgrades. Providers deliver software upgrades -- such as improved functionality and enhanced user interfaces -- over the Internet.

Source: CustomerSat, Inc., Customer Satisfaction Survey April 2005. Sample size is 218 respondents from all size companies, randomly selected.

Source: CustomerSat, Inc., Salesforce Customer Satisfaction Survey Jan. 2006. Sample size is 346 respondents from all size companies, randomly selected