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SLA guarantees: More reassurance than insurance

NetSuite is the latest hosted CRM provider to put its money where its service levels are. Still, some question whether the guarantees mean all that much to customers.

NetSuite Inc., said Tuesday it would refund monthly subscription fees if it failed to hit pre-defined performance levels. Many agree, however, that when it comes to hosted CRM, uninterrupted service is far more valuable than a money-back guarantee.

"Really, why we've gone to this step is a lot of companies are running their e-commerce, invoicing and back office, not just CRM, on our system," said Zach Nelson, NetSuite CEO. "We felt compelled internally to make sure they had some guarantee of service because so much is riding on us."

Under the guarantee, NetSuite customers will receive a credit for that month's services if the San Mateo, Calif., company does not make its applications available 99.5% of the time. The uptime promise contained in service level agreements (SLA) covers all but a few early morning hours on the weekend, which are reserved for maintenance and upgrades.

It's better than no guarantee at all.
Zach Nelson, NetSuite CEO,

Yet for ASPs, whose bread and butter is getting CRM up and running quickly and cheaply, a money-back guarantee may not hold the same appeal as it would with other products. Losing a CRM system in the middle of a busy workday could cost a company far more than a month's subscription fee.

"In the greater scheme of things it would not compensate for what [companies] could potentially lose," said Laurie McCabe, analyst with Boston-based Summit Strategies. "It is an affirmation that [ASPs] are doing everything that a vendor can do to make sure the systems don't go down."

That's a point Nelson acknowledged. He said the guarantee is first and foremost a way of reassuring customers that their applications are safe outside of the firewall.

"It's better than no guarantee at all," Nelson said.

Hosted providers may have matured, gained traction and shared success stories, but many customers still need some additional assurance, said Dan Starr, chief marketing officer for Boston-based Salesnet Inc., a NetSuite competitor. Salesnet has offered a money-back guarantee based on 99.6% uptime since it went to market in 2000.

"The ASP model is all about putting the customer in control," Starr said. "This is another way the client feels in control."

NetSuite had previously offered guarantees on an individual contract basis. The company knew it could outperform 99.5% uptime so it elected to commit to that performance level, Nelson said.

He added that the 99.5% uptime is probably more than an internal IT department could commit to.

While its new guarantee is not much of a differentiator from Salesnet's, NetSuite seems to have its competitive eye turned toward Salesforce.com, the widely acknowledged leader in the hosted market, McCabe said.

San Francisco-based Salesforce.com could not be reached for comment on its service-level guarantees.

As the gap between the hosted providers' functionality narrows, these companies are going to need to look elsewhere to set their services apart, McCabe said.

"Down the road, what we may end up looking at for a competitive advantage is some sort of guaranteed return for your business," McCabe said. "I would think at some point people are going to have to start putting other kind of metrics out there they can use to differentiate themselves like turning leads into sales."

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