It wasn't that long ago that hosted CRM vendors were united in spreading the message of the superiority of their on-demand model over the old, on-premise way of delivering software.
But as the market has matured and their companies have succeeded, including two successful public offerings from San Francisco's Salesforce.com and Bozeman, Mont.'s RightNow Technologies Inc., hosted vendors find themselves competing against one another on deals. As their applications have evolved, so has their message, and it has become evident that the major vendors have a different perspective on the future of the hosted CRM market.
Not surprisingly, each vendor believes the market will evolve into their core area of strength.
"Our view is it's going to come down to a best of breed versus an integrated suite," said Zach Nelson, CEO of San Mateo, Calif.-based NetSuite Inc. "The same thing that happened in the enterprise space is going to happen in the small business space."
NetSuite, with a heritage of hosting back office and accounting software, offers both ERP and CRM capabilities, as well as e-commerce functionality. The company's ability to provide order management and inventory management provides real value to a sales force, Nelson said.
NetSuite recently reaped some accolades for its CRM tools from Cambridge, Mass.-based Forrester Research. A report bestowed top honors to NetSuite for sales management and ranked it ahead of Salesforce.com and Siebel in a number of "classic SFA (Sales Force Automation)" categories, Nelson said.
"What these rankings presage is that CRM systems need to do much more than what they have been tasked with in the past, i.e., tracking prospects," Nelson said. "You actually need to be able to sell something with them, and by that I mean literally take the order in the system. Once you can take the order, the value of the CRM system goes up exponentially."
For example, sales people have a better grasp of what a customer has bought and can sell them more, marketing has a better idea of which leads turned into customers and support staff know instantly what a customer bought. Finally, linking the back and front office in one hosted application allows a company to better extend its CRM system online, Nelson said.
Service and workflow
RightNow has, for most of its history, focused squarely on the customer service side of CRM. In October, it released its version 7.0 product with sales and marketing functionality. The future of hosted CRM, said RightNow's CEO Greg Gianforte, lies in business processes.
"The thing to keep in perspective is we're still at the very beginning of this on-demand phenomenon," he said. "For all vendors, the capabilities are going to get more sophisticated, particularly in the ability to handle business workflow. It really dooms the legacy on-premise vendors."
For instance, RightNow has created a hosting management system which, Gianforte said, provides companies with more control than if they were running their own data center. It allows companies to upgrade and integrate applications on their own schedule.
With its service expertise, RightNow also tends see less of hosted competitors like Salesforce.com and NetSuite than traditional service vendors like Siebel call center, Amdocs and PeopleSoft when it competes for business. RightNow gets 40% of its revenues from companies with $1 billion in revenue, Gianforte said. He expects that to continue.
"Our customers are asking us for more sophisticated capabilities so they can leverage what they're learning," Gianforte said. "Our emphasis is on expanding the product suite to leverage that intelligence."
While RightNow also offers its applications on premise, 87% of its customers are deployed on demand. It also has a significant lead in service functionality, Gianforte said. With a service oriented architecture development and smart Web technology, RightNow has been able to solve the latency issues inherent in a straight html application.
Have it both ways
For San Mateo's Siebel Systems Inc., the future of hosted CRM does not necessarily lie in hosting. Customers will want the option of having both an on-premise and an on-demand application or the ability to move from one to the other, said Keith Raffel, Siebel's vice president of CRM OnDemand and the former CEO of UpShot Corp. Siebel purchased UpShot more than a year ago to boost its own hosting venture, Siebel OnDemand.
It's like buying a car, Raffel said. You pick one out, test drive it, decide on your options and then, at the end, you determine whether you want to lease or buy. CRM is the same way.
"There's sort of a religious war going on out there," Raffel said. "There are some who say 'we only lease and if you don't like it, then you're an idiot.' Our strategy at Siebel Systems is one product, two deployment options."
Siebel the leading vendor in the on-premise enterprise market for CRM is still selling more of its on-premise applications than on-demand, proving there's still an appetite for it, Raffel said. While there is still a significant functionality gap between Siebel's hosted and on-premise versions, expect that to close thanks to Web services.
"This debate of suites versus best-of-breed has been raging since I've been in high tech," Raffel, an industry veteran, said. "The great thing Web services brings to the world is integrated best of breed solutions."
Raffel doesn't see much of a future for a customizable application. Siebel has already offered its application in several vertical flavors and plans to add more. In fact, to continue with the car analogy, making a customizable application is like giving a customer a chassis and wheels and telling them to build the rest, Raffel said.
Of course, that's not necessarily the way Salesforce.com sees it.
"Their vertical approach is a vestige of their shameful legacy of failure," Marc Benioff, CEO of Salesforce.com said of Siebel. "They've been trying to shove people into little Siebel boxes for a long time. Customers don't want to develop [applications] but they do want to make the system completely for them, make their technology fit their business and not the business fit their technology."
Recent history, Benioff asserts, is squarely behind his company. Salesforce.com just posted quarterly earnings of $3.6 million on revenue of $54.6 million. More importantly Salesforce.com has added 110,000 subscribers in the past 15 months, compared to 28,024 subscribers to Siebel OnDemand.
The future of hosted CRM and technology itself, according to Benioff is the operating system itself being the platform. Salesforce.com's sforce development tool can serve as a company's database, while Customforce.com, its customization tool kit, allows users to fit the application to their needs. Meanwhile, Salesforce.com and Supportforce.com are there to serve a company's CRM needs.
"We're trying to provide the most flexible, most complete, robust offering for a customer so they don't get trapped into a box," Benioff said.