Face-off: Hosted CRM

Is it really cheaper, faster and simpler? Our editors go toe-to-toe on the merits (or lack thereof) of the hosted model.

Hosted CRM evangelists preach about its speed, simplicity and cost savings. But is this increasingly popular delivery

model really all it's cracked up to be? Our editors go toe-to-toe on the merits (or lack thereof) of hosting.

Hooray for hosts, CRM's saviors

By Kerry Glance, Editor

Remember a few years ago when application service providers (ASPs) first came into vogue? Everyone had such high hopes for the hosted model. ASPs were poised to change the software world. Alas, the dot-com collapse stymied those expectations and had us ready to bury ASPs for good.

Well, get over it.

ASPs are back, baby -- and the whole CRM industry should be glad. Heck, hosted CRM was one of the few bright spots in the industry last year. It reminded us that there is more to CRM than headaches and heartaches, broken promises and bloated budgets.

Even CRM's pioneer, Tom Siebel, once a hosted disbeliever, came around after he saw the UpShot. (Pun intended!) Siebel had sat on the sidelines as Salesforce.com stormed the market and racked up thousands of customers. Finally, the company threw its hat into the hosted ring in December with Siebel CRM OnDemand.

Siebel's move is just in time, it seems. In a recent survey by the Aberdeen Group, 35% of respondents said they already use hosted CRM products, and 85% said they would evaluate hosting as they consider new CRM solutions.

And why wouldn't they? The truth is, hosted CRM makes perfect sense, in a lot of ways. It's cheap (with fixed monthly costs), it's fast (companies usually can be up and running in weeks) and it's easy (upgrades are done automatically). In a word, hosting is convenient. And let's face it: "Convenient" isn't necessarily a word we've associated with CRM in the past.

Along with the cost savings, the speed and the simplicity comes ROI.

Remember, hosted CRM taxes fewer of a company's resources, since it works like a utility. Technology implementation and maintenance are not your IT department's problem. This was especially important when economic times were tough. However, even in a healthy economy, what company won't need to use tech resources prudently?

These days, hosted CRM isn't just for small companies. Sure, SMBs have championed the model, but plenty of larger companies are finding success, too. (Consider Salesforce.com's recent deal with SunTrust Bank.) Hosted players are working hard to counter criticism that they lack the integration and customization capabilities that larger companies need. Every hosted version gets better in this regard -- and many of the hosted vendors are now addressing customer needs with a vertical approach similar to that of their on-premise counterparts.

Some hosted skeptics will tell you that customer data is too precious to trust to an ASP. That's a legitimate concern, since customer data is a company's greatest asset. However, the fact of the matter is, a lot of hosted vendors have better security measures in place than do many enterprise data centers. Even the biggest control freaks should find peace of mind -- after all, an ASP is out of business if even one customer's data is compromised.

Other hosted opponents talk TCO, arguing that, after three to five years, "renting" CRM costs more than "buying" it. And that may be so -- if you don't factor in the hidden costs of upgrading, supporting and maintaining your licensed apps. Calculating TCO is not as cut and dry as you'd think.

Given CRM's bad rap and the buyer anxiety resulting from all those highly publicized failures, it's worth investigating a new angle. The hosted model allows companies to reap the benefits of CRM without many of the hassles. For the first time in a long time, CRM doesn't seem so intimidating -- and I'm all in favor of that.

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Beware of ASPs' bite

By Karen Guglielmo, Editor

Negative trends often emerge from a weak economy. Hosted CRM is one of them. The model preys upon SMBs that don't have the IT resources or the skill sets to implement and manage applications.

They're expected to do more with less, so SMBs -- more so than large companies -- are always looking for options to save time, cut costs and maximize resources.1

Hosted CRM is a perfect example of a vendor offering that takes advantage of budget-constrained companies. True, the hosted CRM model allows them to implement a simple CRM system quickly and cheaply. The time-to-benefit issues of hosted CRM include savings in upfront costs and reduced startup time. So, to a business looking to save time, money and resources, hosted CRM looks like a perfect fit. But does this out-of-the-box solution address the long-term needs of SMBs?

Not really.

What happens two or three years from now, when the SMB grows and needs to customize or expand its CRM system? The majority of hosted CRM packages are one-size-fits-all models that allow for few or no customizations. This is part of the value proposition for ASPs. They earn more by applying the one-to-many model. Customization is simply too costly. Therefore, they can sell their packages to many customers and save time and money on implementation and management costs. This seems like a fair short-term solution for a struggling SMB. But it doesn't address the long-term goals of a growing organization.

And what happens two or three years from now, when the SMB makes the strategic decision to bring its CRM system back in-house? (Many companies choose to do so to address complex integration requirements or regulatory issues.) Migrating from hosted to on-premise software should be an easy process. Unfortunately, few hosted CRM vendors are good at helping with this transition. Most of them do not include migration tools or migration support in their packages. Once again, hosted CRM addresses the short-term problems of the budget-constrained SMB, but not its long-term concerns.

Finally, let's look down the road three years and consider how much hosted CRM will cost you. Is it still cheaper than deploying the system in-house? Probably not. According to research from Meta Group, the total cost of ownership for hosted applications, including CRM, exceeds on-premise software after that magical three-year mark. Bottom line: Hosted solutions ultimately will cost you more.

Sure, hosted CRM sounds attractive to the SMB working in a constrained IT environment. But think of the long-term benefits -- or lack thereof. The economy is getting stronger, and companies shouldn't fall victim to the weak offerings of desperate vendors.

That said, I do think hosted CRM is beneficial in one type of scenario. If you're one of the estimated 98% of businesses in North America that doesn't have a CRM operation in place, I'd recommend implementing a hosted CRM solution for a limited time to try to "figure out" CRM. If you discover CRM is a fit for your organization, set it up in-house, where it belongs.

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