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CRM hosted, on-premise or both?

The ACF switched its CRM system from on-premise to hosted while keeping the same vendor. Vendors are touting the benefits of both, but few are implementing hybrid CRM.

When officials at the Administration for Children and Families (ACF) realized that their on-premise CRM system was becoming more of a problem than they had anticipated -- thanks to clunky upgrades, shrinking server space and growing IT staffing needs -- they simply got rid of it.

A customer of Bozeman, Mont.-based RightNow Technologies Inc. since 2000, the ACF, a division of the U.S. Department of Health and Human Services, switched RightNow's on-premise CRM system to a Web-based deployment hosted in RightNow's data center. The options of switching back and forth between deployment models or using both together ( the hybrid option ) is being touted as a major competitive advantage by both RightNow and Siebel Systems Inc., which offer their CRM applications both hosted and on-premise. Under the hybrid model, companies could use hosted CRM at one location, such as a small division, or a far-flung office, while keeping the rest of the company on an enterprise, on-premise CRM application. In addition to RightNow and Siebel, there are the myriad CRM vendors that have simply offered their CRM application via the Web, rather than rearchitecting the system from the ground up for the hosted model.

Yet organizations have been slow to adopt the hybrid model and,  with some exceptions, those moving from one deployment model to another have been limited.

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"Vendors talk about how this is an advantage to start out on-demand and keep the same data model if you want to go on-premise, but to this date we haven't seen a lot of examples of that," said Rob Bois, senior research analyst with Boston-based AMR Research. "It's probably a little early in the process. It's when companies start looking years out they see whether software as a service is their long-term solution."

Hosted CRM may once have been considered "CRM with training wheels," but it is obvious from the recent performances of vendors like RightNow, San Francisco's Salesforce.com and San Mateo, Calif.-based NetSuite Inc. that the model is here to stay. In fact, RightNow CEO Greg Gianforte said roughly 87% of his customers are now hosting, up from 50% four years ago. Additionally, RightNow is getting into competitive deals with its on-premise offering only to find during the sales cycle that the customer really wants a hosted option instead. Much of the time it's a matter of convincing IT that this is not a threat and, on the contrary, will make their lives easier, Gianforte said.

ACF was one customer that was happy to make the switch. The department had been running RightNow customer service applications in-house on Oracle servers for FAQs on the public Web site, internal Web requests and citizen support for specific audiences like the home heating assistance program for low-income families. However, every upgrade required significant IT resources and server space was dwindling.

"It got to where we needed a [database administrator] to help manage things, and that's pretty expensive," said Linda Adams, CRM manager for the Health and Human Services Web Team.

Adams did a cost analysis of running the application on-premise versus hosting it with RightNow and in 2003 convinced the higher-ups that hosting was a cheaper option. While switching over the domain links to RightNow was a difficult task, the process went smoothly.

Despite ACF's success, switching deployment models carries risks, warns Denis Pombriant, managing principal with the Stoughton, Mass.-based Beagle Research Group.

"You've got many of the same deployment situations as changing vendors when you do that," he said. "There's an awful lot of customization that's going to have to be redone or moved -- if it can be -- to the hosted application. That's not necessarily a trivial task."

For Pombriant, when it comes to hybrid applications, the connections between hosted CRM and legacy applications is the more important one.

"A lot of companies that think hybrid solution think in those terms," Pombriant said. "Rather than having some hosted CRM, some on-premise CRM, their idea of hybrid is bringing new systems into the fold and integrating."

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