The world is full of technologies that have promised to change the complexion of business as CIOs and I.T. personnel know it. Sometimes innovation sticks and sometimes it does not. On-demand software not only has proven its staying power but also has been gaining traction year after year among enterprises of every size.

A spate of companies, from Microsoft to Oracle to SAP, has entered the on-demand market, joining veteran vendors such as Salesforce.com in offering hosted business solutions. With the recent release of the on-demand version of mySAP, the time is ripe for a lowdown on these increasingly popular solutions and their value in customer-relationship management (CRM).

On-demand relieves businesses of the maintenance and daily technical operations of software, offering companies the choice to let someone else host their applications for them. A recent report from the research firm IDC predicted that the on-demand software market is going to grow by more than 40 percent per year through 2008. IDC estimated that in 2004, the on-demand market was $4.2 billion. The firm forecasts that the market will grow to $10.7 billion by 2009.

The recent attention paid to the software-on-demand delivery model has made the past couple of years important ones for the I.T. industry, according to Erin Traudt, an IDC research analyst for the Software as a Service (SaaS) program, and author of the report "U.S. Software On-Demand Delivery Model 2005-2009 Forecast."

"[On-demand] is the type of disruptive innovation that has re-energized the single-digit growth software industry and provided a new method for obtaining the type of software that departments of large organizations, as well as small and medium-sized businesses, previously may not have been able to purchase due to cost or lack of I.T. resources," Traudt said.

On-Demand vs. On-Premise

Hosted solutions have experienced a phenomenal rate of growth that is projected to continue as vendors tout the faster deployment, reduced cost of ownership, and improved technical support of an on-demand product.

On-demand services promise much easier and faster installation of applications. Traditional enterprise software often takes anywhere from nine months to a year or even two years to install and deploy. It can be a complicated process that begins by hiring a professional-services company such as Accenture or Deloitte & Touche, which sends a busload of people to the business and essentially sets up camp there until the system is up and running.

Some businesses have to buy hardware and wait for that to be delivered. Then they have to configure the hardware, then find and set up a data center. The process continues as routers are installed and backups completed.

In the on-demand model, vendors have already procured the infrastructure in advance and have that capacity all ready to go. Many companies have appreciated the flexibility afforded by being able to implement technology quickly. The traditional on-premise CRM model just does not provide such speed.

Another advantage of using a hosted solution over on-premise CRM applications is the significant reduction in the cost of ownership. A study by Gartner Research that looked at the total cost of ownership of enterprise applications found that 80 percent of the cost of deploying and maintaining on-premise applications is not due to licensing, but to additional costs related to hardware and administration of the software.

"In an apple to apples comparison, from the customers’ perspective, their total cost of ownership in an on-demand model is really 80 percent less than it would be had they done it on premise. And the resulting system is more reliable," said Greg Gianforte, CEO of RightNow Technologies, a leading on-demand CRM vendor.

Proponents of on-demand solutions say that SaaS vendors know if there is a problem almost as soon as it occurs. If it is something relatively simple, the customer, more than likely, will not even notice the glitch. For a more-critical problem, such as a business Web site crashing, an on-demand vendor can take over Web-based operations until the site is available once again.

Conversely, with on-premise software, vendors ship a CD that companies then deploy on their own hardware. If some part of the software is not functioning properly, the vendor has no idea unless the customer complains.

A look at the major players in on-demand CRM begins with the recent announcement of perhaps the biggest player getting into the game.

MySAP

Released in February, SAP’s hosted version of its mySAP CRM suite supports basic sales-force automation (SFA) functions for its large- and midsize-company installed base. The offering includes analytics capabilities and a streamlined user interface (compatible with the on-premise version of mySAP CRM) that features the ability to perform ad hoc queries to gain quick access to sales data. The program also provides integration with Lotus Notes and Microsoft Office.

SAP’s initial strategy with its on-demand CRM seems geared to companies needing "quick fixes," such as help in managing the sales pipeline, with an eye toward eventually moving those companies to the "more robust" on-premise CRM program, according to SAP’s literature. But some analysts have found this approach to be limiting.

According to Robert DeSisto at Gartner, mySAP so far lacks some key functions required to support moderate-to-complex sales needs, such as quotation management, support for matrix-based organization structures, the ability to generate product forecasts, and the ability for sales organizations to customize the system to create fields or add new menu items.

"The problem with SAP is it offers very basic functionality and is missing a lot of capabilities [that] a lot of customers want and need," DeSisto said.

To SAP’s credit, it has a more-liberal contract policy than the majority of on-demand CRM vendors, which require clients to commit to 18 to 24 months of service. Enterprise customers that want more out of their CRM solution than mySAP provides can cancel their contracts and receive a full refund on the remainder of the term without penalty. SAP also plans to upgrade the CRM package every 90 days, a more-frequent release cycle than customers using on-premise mySAP have experienced.

The vendor has announced that it will support a multitenant model that requires each customer to use the same version of software. Although this might not be ideal for larger enterprises, the multitenant model is critical if SAP is to launch new releases of its software quickly.

List price for mySAP on demand is $75 per user per month, with a minimum subscription of 100 users.

Salesforce.com

A veteran player in the on-demand market, Salesforce.com has long enjoyed a reputation as both a pioneer and a standard-bearer of on-demand CRM. It offers hosted services in sales-force and marketing automation, customer service, analytics and reporting, mobile CRM, and customization.

Salesforce.com has demonstrated an ability to thrive in a chaotic environment, both in the industry and within its own walls. In 2004, the company became publicly traded and immediately was hit by shareholder lawsuits for misrepresenting its business performance.

"Salesforce has had to work to get some traction, but now that it has it, we’re seeing more mature products and more breadth," said Sheryl Kingstone, Yankee Group program manager for CRM applications and infrastructure. "It’s emerging well from a shake up in the industry."

One reason Salesforce.com has been growing at a healthy clip — sales in 2005 grew 83.7 percent over 2004 — has been because of a focus on product innovation. To wit, the company recently launched AppExchange, an application-sharing directory and service that aims to make on-demand CRM easier to use even as Salesforce.com looks beyond it.

The company is calling AppExchange the world’s first on-demand, application-sharing service. The platform seeks to provide enterprises with the means to create their own CRM suite and business-application functionality without the expense of installing software. In AppExchange, Salesforce.com provides prebuilt connectors for business-application providers such as SAP, PeopleSoft, Siebel Systems, and Oracle.

AppExchange offers the ability for individuals, developers, enterprises, and other organizations to contribute and make applications available under terms chosen by whichever entity has made its software available. Salesforce.com does not charge a transaction or listing fee.

On Monday, Salesforce.com announced a new service plan, Unlimited Edition, which provides support for programs developed internally by customers as well as for those created by third parties and installed through AppExchange. The company is touting Unlimited as the way for enterprises to run all of their software, on-demand.

Salesforce is charging $195 per user per month for Unlimited Edition, which includes the company’s full suite of CRM applications and access to AppExchange. Basic CRM packages begin at $65 per user per month.

RightNow Technologies

Like Salesforce.com, RightNow Technologies reports steady revenue growth — 40.9 percent more in 2005 than in the previous year. Its on-demand CRM products are used by organizations including British Airways, John Deere, and the Social Security Administration.

The company is distinctive in its drive to appeal to businesses of all sizes. Trying to be all things to all companies is a strategy that sometimes results in questionable performance, but RightNow appears able to pull it off, many analysts have noted. Its customers span industries that include retail, telecommunications, nonprofit organizations, pharmaceuticals, education, and consumer goods.

RightNow tries to cater to companies that have 50 employees or 50,000. It has enterprise, midmarket, and small-business services available, with components that focus on service, sales, and marketing.

One of RightNow’s strengths, in fact, is its marketing-automation software, which enables customers to create multichannel campaigns while reducing the complexity of managing them. Users can quantify a campaign’s effectiveness, the company says, through real-time data.

With its breadth of industry experience, RightNow tends to get noticed by customers that might be working in a number of vertical areas or are trying to scale from an small business into an enterprise. Prices for its products and services are dealt with on a per-organization basis.

NetSuite CRM

NetSuite caters to small- and medium-sized companies, promising an on-demand CRM solution analogous to software designed for the "big boys." It claims to be the only Web-based software vendor to combine e-commerce, accounting, and CRM in a single system.

Distinctive features include dashboards, the collective term applied to technology that renders, in real time, critical business information on a person’s computer screen. NetSuite’s dashboards enable companies to access data with more than 70 preconfigured point-and-click key performance indicators (KPIs).

Enterprises are able instantly to view trends and customize the dashboards based on employee roles, tailoring the software for CEOs and sales managers alike. The dashboard includes meters that can track forecasted sales or sales quotas against actual sales. It also serves as the workspace for access to integrated applications.

NetSuite offers CRM basics such as marketing, opportunity tracking, forecasting, and case management in addition to advanced tools such as order management, lead conversion, cross-sell and up-sell, and commissions. NetSuite’s CRM+ incorporates a partner-relationship management application allowing businesses that collaborate with one another to share customer and sales data and jointly track marketing activity and sales.

With the recently introduced NetFlex platform for customization and integration, NetSuite has taken on Salesforce.com’s AppExchange platform and application services. As with AppExchange, NetFlex is a Web-based service that enables enterprises to build new applications within NetSuite, including custom database tables and forms.

Like RightNow, NetSuite offers pricing on a per-organization basis.

Microsoft Dynamics CRM 3.0

Released in December, Microsoft Dynamics CRM 3.0 offers new customization and integration capabilities that will permit the company to extend its CRM offerings beyond the small-business space to larger corporations. Partners include Avaya, TechWerks, Cisco Systems, IS Partners, and Axonom.

The application got a nice boost on March 8 when Siemens Communications announced that its major contact-center systems will be integrated completely with Microsoft’s Dynamics CRM software. "It makes a lot of sense for Siemens to do this," said Forrester analyst William Band. "They want to grow their position in the CRM space and attract more midmarket customers." By tying their offering to Microsoft’s, Siemens will be able to reach that market more effectively, Band said. "They’re jumping on Microsoft’s CRM bandwagon."

Dynamics 3.0 is a single-tenant model, meaning that upgrades arrive on a one-off basis as opposed to the multitenant model used by most hosted software vendors. According to Liz Herbert, a Forrester Research analyst, the good news about Microsoft’s single-tenant model is that partners can host vertical solutions, so business consumers have the advantage of receiving hosted and vertical offerings. The pitfall to this model is that with each enterprise running its own code, when it is time for upgrades, Microsoft’s partners need to distribute the upgrade or patch to all users.

Microsoft designed the software for maximum customization so that the CRM adapts to an enterprise’s business model rather than vice versa. To facilitate that goal, the software has been created to allow CRM application to be rapidly integrated with customer data and business needs. The package includes ad hoc query and analysis features. Naturally, the software is integrated tightly with Microsoft Office and Outlook.

"We put CRM right on the desktop, along with Office," said Brad Wilson, general manager of Microsoft Business Solutions CRM. "Most corporate users are comfortable with Office productivity tools, and so CRM becomes a natural extension of what they’re already doing. It’s not a major leap with a new application."

Included in the latest version are business-intelligence tools to help with marketing efforts and other business activities. The marketing-automation module is designed to make it easy to build customer or lead lists, create targeted marketing campaigns, track the progress, and follow up on those campaigns. With the software’s campaign wizard, marketers and salespeople can send out bulk e-mails to targeted lists and track responses. Finally, the service-scheduling module enables businesses to manage all aspects of a service request.

The hosted solution is available in a Professional Edition and Small Business Edition. The Pro package is priced between $622 and $880 per user and between $1,244 and $1,761 per server, based on the features selected. The SMB package prices range from $440 to $499 per user and between $528 and $599 per server.

Siebel CRM OnDemand

Perhaps no company made a bigger splash in CRM last year than Oracle, which added roughly 4,000 customers and 3.7 million CRM users when it acquired Siebel Systems in a deal estimated at $5.8 billion.

With the latest version of Siebel’s CRM OnDemand, Release 9, Oracle has what some regard as the leading offering in the hosted-CRM space. Its software provides hosted sales-force automation, marketing, and customer-service capabilities, and includes an integrated call center that enables companies to manage communications through both in-house and remote channels.

Other key features include integration with Lotus Notes and Microsoft Outlook, interactive voice response (IVR) integration with third-party systems, and branding options that allow companies to retain their corporate identities when sending out leads or tracking joint projects and sales.

Using the ubiquitous tabbed interface, enterprises can access sales, marketing, and service records in addition to search functions, dashboards, and reporting through a Web browser. Key features of the suite’s sales-force automation capabilities include the creation of subaccounts for easier management of larger customers.

With definable sales steps, businesses can configure performance expectations for agents. Another feature allows an enterprise to track its customer interactions and create audit trails.

The true standout in this suite, however, is the out-of-the-box call center that runs atop Telephony@Work’s CallCenter@nywhere engine. The service provides Voice over Internet Protocol (VoIP) integration and call routing to off-premises numbers such as mobile phones or a home office and includes tools for IVR development and rules-based communications routing.

With OnDemand, call-center agents are assigned to cases on the basis of their skill sets. Managers can monitor inbound queues and with another set of tools track agent performance and provide guidance using the monitoring-and-recording, offline-coaching, and conference-call features.

CRM OnDemand with Contact OnDemand is priced at $150 per user per month. CRM OnDemand is priced at $70 per user per month. Contact OnDemand is priced at $100 per user per month with a setup fee of $5,000 plus $100 per agent.

Other Vendors

In addition to the companies above, smaller shops including SugarCRM, ZohoCRM, Soffront, and Salesboom all offer hosted packages. Like the "big boys," they all hope to tap the nearly 79 percent of businesses that either have or have considered using on-demand applications, according to an IDC survey from 2005.

Despite all the hype, however, it’s important to remember that traditional on-premise, licensed software isn’t headed for extinction just yet. Even within the CRM field, which is driving the on-demand movement more than any other segment of the industry, on-demand software accounted for about 6 percent of the $9 billion CRM market in 2005, according to IDC.

But where some people see a very small slice of a very big pie, others see room for enormous growth.

"My belief is that the vast majority of applications are going to be consumed in this on-demand model," said RightNow’s Gianforte. "This on-premise model takes five times longer to get benefit and cost five times more to implement. It’s outdated and it will go away. That’s why this is so important. I was talking to a venture capitalist who said they won’t even fund a company that develops on-premise software anymore. On-premise is over, done."

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