Online CRM Grows Up

Hosted application services are making inroads to enterprises.

Publicly, CRM software market leader Siebel Systems Inc. used to scorn hosted customer relationship management application services. But that changed in early October when the San Mateo, Calif., company announced its hosted CRM offering, Siebel CRM OnDemand, then followed that two weeks later with the acquisition of hosted CRM startup UpShot Corp.

The moves highlight a growing reality: Larger enterprises are buying into hosted CRM services, some signing multimillion-dollar deals to offer the services to hundreds, if not thousands, of employees. The reason, according to those customers, is that hosted offerings provide customer information to sales, marketing, service and management employees with lower upfront costs, easier management and remote access superior to licensed software.

Office supplies company Staples Inc. has 600 to 700 employees using Salesnet Inc.s namesake hosted CRM offering and expects to have more than 1,000 users on Salesnet by early next year, according to Senior Vice President Jay Baitler.

"It was born of necessity. I could not financially make the case to go with one of the major software packages and put up the capital that was going to take," said Baitler, in Framingham, Mass. "In Salesnet, I saw the possibility for a cost-effective tool to manage our explosive growth. ... Weve had a tremendous influx of new sales associates. We needed a tool to monitor their performance."

Salesnet has provided an unexpected benefit for Staples. Its customers can use the service as a financial-compliance tool to ensure theyre buying office supplies on their purchase order contracts and getting the lowest prices possible for them, Baitler said.

Boston-based Salesnet boasts the highest average number of users per customer, at about 25, compared with about 15 users per customer at larger rival Inc. But claims more than 118,000 seats total. last month announced a 3-year, $2 million deal to provide hosted CRM services to more than 1,000 users at computer chip manufacturer Advanced Micro Devices Inc.

"Were in a lot of large enterprise accounts now. Were closing a lot of large transactions," said Marc Benioff, chairman and CEO of San Francisco-based "More than a third of our revenue is companies who have more than $500 million in sales."

When hosted CRM application services appeared in the late 1990s, they were often criticized, even by their customers, for having limited customization capabilities. But enterprise customers using the services said that is no longer the case. touts its Sforce hosted application development tool kit, released this summer, as a way for customers to customize its service and build new applications on the service.

Magma Design Automation Inc., which builds software applications for computer chip design, has 380 of its 400 employees on Using Sforce, the company built a bug tracking application that runs on the hosted CRM service and extended it to nearly all of its employees, according to David Brooks, director of CRM at the Santa Clara, Calif., company.

Brooks said that the service may not be as feature-rich as some of its licensed competitors, but the limitations are worth the trade-off for the benefits it provides over licensed software.

"They cant be everything to everybody," Brooks said. "There are times when weve wanted to customize something and we can only get it to 90 percent of what we want it to do. We have to compromise for the other 10 percent.

"If I dont have to worry about upgrading my customizations as the software changes, I can live with that," Brooks said.

Integration is another area where users increasingly give hosted CRM services high marks. Designed from the ground up for the Web, such hosted services are well-positioned to take advantage of emerging Web services standards, according to hosted CRM services vendors.

Tellabs Operations Inc., a $1 billion telecommunications equipment manufacturer with 400 Salesnet users, used Salesnet APIs to integrate with a homegrown forecasting tool, something Scott Jackman, senior manager of sales operations, said was an easy process. The Naperville, Ill., company plans to undertake a more ambitious integration project, tying Salesnet to its SAP AG back-office applications. Based on his experiences with Salesnet, Jackman is optimistic about that project.

"We have portability, ease of access from the user standpoint, ease of use and design," Jackman said. "We have a low number of headaches, not a lot of issues.

"I was a nonhosted application guy. Ive kind of dropped my bias because of Salesnet," Jackman said.

Siebel hopes to play the integration card with its Siebel CRM OnDemand service, due at years end. Officials said the hosted offering will integrate seamlessly with Siebels existing licensed software.

Despite the high-profile customer wins for, Salesnet and other hosted CRM services, Forrester Research Inc. analyst Erin Kinikin pointed out that large, enterprisewide deployments remain rare.

"The vast majority of hosted CRM deals are still [with] single departments and often single business units—even if those business units are getting larger," said Kinikin, in Cambridge, Mass. "Hosted CRM is like a virus—it starts small but often grows beyond ITs ability to control it."

As IT departments seek to gain control over these services, Kinikin predicts many hosted implementations will become hybrids with both licensed and hosted components.

In the meantime, hosted CRMs traditional strong points, easy access for mobile workers and quick deployment, continue to be big draws.

"A lot of our work is done on customer sites," said Magmas Brooks. "Its hard to VPN from their site into ours. With, our developers and field engineers can just log in to from a browser from anywhere they go."

Brooks also noted the ease of implementation and management of "I can do a complete rollout with three guys in a couple of minutes," he said. "The cost savings are significant. Its not like we have to have a bunch of CRM engineers do an integration with Siebel."