On Demand CRM | Software as a Service (SaaS)
SaaS, sometimes called on-demand, hosted delivery or cloud computing, permits businesses to rent access to CRM software systems and the IT (information technology) infrastructure that delivers those systems, pay for the business systems with a per user subscription fee and provide staff with access to information from any location at any time. While Customer Relationship Management software has lead the way in the SaaS industry, other popular on-demand business systems include Enterprise Resource Planning (ERP), accounting systems, Human Resources (HR) and payroll systems and expense reporting.
While users are often the most cited beneficiaries of SaaS systems, IT leaders and staff also have much to gain. Companies subscribing to SaaS CRM systems rid themselves of constant software updates, unpredictable maintenance, never ending trouble-shooting, growing storage requirements, new information security threats, labor dedicated to keeping information systems running and other technical burdens that weigh them down. SaaS offers the opportunity to transform IT departments from support staff to business partners and strategists by shifting their attention from mundane technical tasks to issues and opportunities far more strategic to the business.
Nicholas Carr, a Harvard Business Review executive editor who gained fame with his book "Does IT Matter?", forecasts the coming change of the IT role in his newest book, "In the long run, the IT department is unlikely to survive, at least in its familiar form. It will have little left to do once the bulk of business computing shifts out of private data centers and into the cloud. Business units and even individual employees will be able to control the processing of information directly, without the need for legions of technical specialists."
As illustrated in the report, while SaaS and cloud computing will transform the IT department, it won't eliminate the need for IT staffing. As more and more companies subscribe to SaaS applications, IT staff will be be relieved of patching systems, writing custom code and upgrading systems and instead charged with matching business processes to application functionality, creating innovation and permitting the company to focus on its core competencies.
SaaS Evolution
SaaS evolved from the earlier Application Service Provider (ASP) model and when initially released at the turn of the century was met with much caution and skepticism. However, most SaaS vendors quickly remedied initial concerns regarding information security and system uptime and SaaS has enjoyed double digit growth since 2000.
Analyst firm Gartner Inc. forecasts that the SaaS industry will achieve $5.1 billion in revenues in 2007, a 21 percent increase from 2006, and will climb to $11.5 billion in revenues in 2011. CRM SaaS is forecast to grow 26% annually through 2011. CRM SaaS growth varies for by segment (whether marketing, SFA and customer support) but hovers between about 7% and 18% of the total CRM software market. In 2006, SaaS CRM solutions grew from 8% in 2005 to about 12% of total CRM software market.
The market share increase for SaaS CRM software is directly attributable to the increase in its value proposition and customer ROI. The below SaaS evolution shows the maturation process.
CRM SaaS 1.0
- What. First version hosted CRM solutions focused almost entirely on reduced Total Cost of Ownership (TCO). The subscription-pricing model and hosted delivery introduced as a cost-effective alternative to licensed business applications and the IT labor to keep them running. The focus was on cost and delivery model – being hosted and rented – not on the application itself and not on direct benefits to the user.
- Why. Lower up front investment and ongoing TCO were a very appealing combination to C level executives bruised by the uncontrolled costs and complexities associated with on-premise CRM software systems. SaaS removed the need to spend money on quickly depreciating hardware, technical staffing to maintain business information systems or buy more software licenses that were actually used.
- Who. Licensed software vendors did little more than watch from a distance and publicly comment that the on-demand model wouldn't work. Initial claims indicated that security and uptime wouldn't be achieved with hosted systems. Later claims indicated that on-demand software couldn’t achieve the integration and customization of on-premise applications.
- Successes. After addressing initial concerns normally related to information security and system uptime, the model quickly proved successful. SaaS vendors turned away from traditional APIs (application programming interfaces) for integration and instead used XML web services for more effective and less costly system integration. Start-up companies such as Salesforce.com, SalesNet, Upshot and Aplicor began to acquire market share.
- Failures. The initial on-demand CRM applications were considered light weight compared to the maturity and richness of the prior generation of licensed client/server applications. Nonetheless, the financial value proposition was compelling enough to begin the on-demand market share growth climb.
CRM SaaS 2.0
- What. With the second version of SaaS, the model’s now proven and multiple technology providers emerge. The competitive differentiation is no longer the delivery and pricing model itself, as multiple start up vendors are fully leveraging the model, so the emphasis changes to who has the best application in the model.
- Why. CRM software buyers look beyond just the benefits of SaaS, and begin to more thoroughly vet the hosted systems. On-demand CRM manufacturers upgrade their systems for greater ease of use, deeper software functionality, improved CRM analytics and simpler customization.
- Who. The traditional CRM companies such as SAP, Oracle and Microsoft that viewed SaaS as a competitive threat and initially chastised the movement, discover they cannot slow SaaS adoption so they enter the industry. Siebel acquires Upshot, Oracle acquires Siebel, RightNow acquires SalesNet and the M&A (merger and acquisition) game is launched. On-demand CRM applications begin to diverge into two directions. Vendors such as Salesforce.com, SalesNet and NetSuite pursue the large number of SMB (small and midsize businesses) with a multi-tenant hosting architecture and applications that resemble traditional e-commerce sites such as eBay or Amazon. Vendors such as SAP, Oracle and Aplicor focus their applications for the needs of the middle market and enterprise organizations, use an isolated tenancy (private database) hosting model and architect their products to resemble more traditional CRM user interfaces.
- Successes. New technologies such as SOA (service oriented architecture) and AJAX (asynchronous javascript and XML) advance the responsiveness and interactivity of browser based applications. A few vendors (Salesforce.com & Aplicor) demonstrate that SaaS software can be customized by non-technical resources and can scale to support thousands of concurrent users. The isolated tenancy (private database) hosting model challenges the traditional multi-tenant (shared) model and makes claims of customer advantages in terms of more flexible system integration, reduced constraints with software customization and improved privacy and information security. The decades old (high-risk and high-cost) on-premise products stagnate.
- Failures. CRM point applications are irrelevant. Vendors that do not offer an integrated suite of SFA, marketing and customer support as well as aggregators without significant value add go by the wayside. While software giants such as Oracle, SAP and Microsoft have finally gotten into the hosted software business, their participation is little more than a side business, their products are relatively immature and their corporate intentions are suspect. Many analysts and insiders believe they may be leveraging the hype and media of the SaaS industry with stepping stone solutions which are intended to attract and then convert SaaS customers to their flagship on-premise products. Although a few vendors make marketing claims for vertical solutions, the products are still almost entirely horizontal. Ecosystems develop, however, at this early point they are little more than sales directories of third party products and their integration on the marketing brochures is much more impressive than the actual integration.
CRM SaaS 3.0
- What. Version 3 SaaS solutions show advancement in terms of product maturity, market segmentation and software scope. Product maturity has now evolved to the point where on-demand feature sets and functionality depth meet or exceed that of the prior generation client/server and on-premise systems. The earlier one-size-fits-all claims by some SaaS vendors are proven false and market segmentation is realized along company size, geographic and industry criteria. As was the case in the prior mainframe and client/server eras, CRM applications evolve from line of business solutions to become more of an integral part of enterprise wide applications and are rolled into larger ERP (Enterprise Resource Planning) systems.
- Why. The maturing of hosted delivery empowers higher fit packaged software solutions for organisations of all sizes and industries. The CRM needs of an SMB company are not the same as a middle market or enterprise organisation. Similarly, the CRM needs of a professional services company are not the same as a transportation company. In the fight for increased market share, on-demand vendors are required to deliver higher fit systems that reduce implementation time, require less customization, lower implementation risk and accelerate ROI achievement.
- Who. Software manufacturers introduce new business growth strategies. Industry heavyweights such as Salesforce.com and NetSuite lessen CRM and line of business software applications focus and instead promote hosted delivery operating systems (e.g. Platform as a Service (PAAS) from Salesforce or BOSS (Business Operating System) from NetSuite) for other CRM developers to leverage. Vendors such as SAP and Aplicor promote greater emphasis toward business process automation, information analytics and CRM within the context of larger enterprise-wide hosted systems. This era further weeds out piecemeal component players in favor of broader suites and company-wide business solutions.
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Successes. The market finally segments by company size, geography and industry. Company size is defined by multiple variables, however, ultimately breaks down into the traditional SMB, Middle Market and Enterprise categories. Geographic CRM systems become recognized for their multi-currency, multi-lingual, localization and local support capabilities. Vertical market systems are delivered industry-ready without customization and with pre-packaged integration to other common industry applications. Other advancements include the following:
- When buyers evaluate CRM software, technology remains relevant, however, loses almost all focus when compared to business process automation (BPI) and capabilities which directly advance business goals and accomplishment. The immediate gratification of SaaS gives way to the forecasted accomplishment of long term sustainable value objectives. SaaS systems are proven and assumed to provide the customization, integration and benefits of the prior on premise legacy systems in a trouble-free environment so that the customer can focus on their core business activities while achieving dramatically reduced total cost of ownership (TCO).
- The former ecosystems built only the SaaS vendors proprietary development languages and platforms (FORCE and BOSS) lose market share to newer ecosystems built on common industry standard platform technologies (Java/J2EE and .NET).
- The IT departmental role changes from trouble-shooting, patching, fixing, coding and integrating business applications to project managing and leveraging technology for near-term, forecastable business results. The IT department is put into a position to advance from a ubiquitous role relegated deep into the company to a strategic business function capable of using technology to enable existing and new business models. The CIO is finally empowered to be a business strategist and earn a seat in the boardroom.
- Failures. Flawed strategies and poorly integrated acquisitions will render several recognised CRM companies and products not useful. Unplanned and unforeseeable changes in delivery, pricing or technology may change the landscape in very short order. No vendor, no matter how large is immune from technology change (remember the number one market share leader and CRM powerhouse called Siebel Systems is no longer in business).
SaaS, on-demand, hosted delivery and cloud computing are the terms used to describe the shift in CRM and other business systems which now use the Web to deliver online access to hosted business software based on a subscription payment plan and managed by an third party organisation; as opposed to the former purchase, installation and maintenance of on-premise business systems.
SaaS growth has sky rocketed and succeeded in changing the acquisition of CRM applications from a capital expenditure to a pay-as-you-go subscription arrangement whereby the CRM system is remotely hosted and delivered to staff on-demand via Internet browsers or mobile devices.
The SaaS cost model is based on utilization instead of ownership. SaaS software delivery, procurement and support provide several advantages, including no capital expenditures, faster implementations, elimination of long-term contract lock-in, predictable costs, improved system uptime, 24/7 reliability and increased ROI.
The high growth and media attention of software as a service has resulted in several software manufacturers making false claims of offering on-demand applications. To achieve the basic tenants of SaaS, the on-demand CRM system should meet the three primary business value propositions of subscription pricing, remotely hosed delivery over the Internet and outsourced IT application management by the SaaS provider.
