CRM on demand: A host of problems?

In the run-up to Christmas, upmarket retailer Brooks Brothers promotes gifts on its Web site and through email marketing. Like many retailers, the company is able to measure Web traffic as the holidays approach. But unlike many competitors, Brooks Brothers can monitor what shoppers spend, and why.

That's because the company uses a hosted customer relationship management (CRM) application, which collects data about customers' accounts and combines it with clickstream data for analysis. The result is knowledge that the company couldn't hope to achieve internally, says Nelson Sanchez, Brooks' e-commerce marketing director. "If we'd done this using internal software, it would have taken us years to develop the capability," says Sanchez. "This helps us measure the return on investment of our online promotions, and gives us a powerful advantage in a very competitive market."

Brooks Brothers' experience demonstrates just how far the market for hosted CRM applications has come since Siebel shut down sales.com, its hosted CRM service, in June 2001. Early hosted CRM packages offered 25 percent to 50 percent discounts over licensed software, but customers didn't like the throughput requirements and bandwidth constraints of hosting. Paying for the bandwidth to run hosted apps often wiped out the benefits of hosting in the first place, says Alex Kwiatkowski, a senior consultant with Ovum.

The latest generation of hosted CRM overcome many of these issues. For example, Siebel and IBM have joined forces to launch CRM on Demand, which is written in Java 2 Enterprise Edition (J2EE) and incorporates Siebel's Universal Application Network integration technology. This makes the application faster to run and simpler to hook up to third-party and legacy apps.

These services are aimed squarely at small and medium enterprises (SMEs) that don't have the resources or the expertise to roll out CRM software internally, says Annette Giardina, CRM business director with Aspective. Hosting is the only way for SMEs to achieve the levels of security and availability offered by top-end datacentres, Giardina believes. "Hosting offers SMEs the ability to compete on a level playing field with companies using high-end software, because it is such a massive saving," she says. Aspective currently offers a hosted Microsoft CRM package to small businesses from £79 per user per month (plus Microsoft's licence fees).

Most hosted CRM solutions cost a fraction of traditional software, which is run and managed in-house. Siebel CRM on Demand starts at $90 per user per month, while Oracle Ebusiness Suite Special Edition can be hosted by a third party for around the same price. Smaller software providers can be even cheaper, but Kwiatkowski warns companies to check out the viability of potential suppliers. "With the entrance of Microsoft and Siebel into the hosted CRM market, we expect to see significant consolidation," he says. "If you're working with a smaller provider, make sure they have a decent business model and a good track record. If they do, the cost savings can be huge."

When Crane Telecommunications, a 150-employee distributor based in Sussex, rolled out a hosted CRM product from RightNow, cost was a key part of the decision. The company needed to reduce operating costs to cope with shrinking margins in the telecoms sector, but also wanted to improve customer service, explains Will Morey, Crane's group marketing manager. "Products like Siebel were completely out of our reach," he says. "Besides, it's very easy to get excited about this stuff, only to find your IT department doesn't have the time or resources to roll it out."

The hosted CRM package from RightNow was a good fit as all that the IT department needed to do was provide bandwidth to access the Web-based software. The upfront cost was significantly cheaper than in-house software, but there are also ongoing savings. "We have far lower support costs, because the hosting company deal with routine upgrades, security patches and so on," says Morey.

In most cases, integrating a CRM application with legacy or third-party applications is the same process whether the software is internal or hosted, says Craig Sullivan, director of marketing with Netsuite, an application hosting company. Following the demise of the first generation of Application Service Providers (ASPs) the industry realised that hosting would die unless companies settled on standard interfaces and integration tools. "We support XML based interfaces so information can be shared between any applications, in batch or real-time," Sullivan says.

But there are exceptions. David Lewis used to sell hosted SAP solutions when he worked with consulting firm Logica. Now IT director of Hillary's, a midmarket blind manufacturer and retailer, Lewis has kept his CRM software firmly in-house. "We did consider hosting, but it didn't meet our requirements as a business," he says.

In late 2001, Hillary's rolled out SAP's customer management module, integrating the new software into an existing SAP R/3 system. Given the investment the company had already made in SAP infrastructure and skills, Lewis felt it would be more cost-effective to keep the software in-house. "We're using an older version of R/3 and the integration isn't the easiest process. It just seemed easier to do it ourselves," he says.

In other cases, companies have kept CRM in-house for security reasons. The Eaga Partnership manages the development and deployment of government schemes such as the Warm Front programme to help provide vulnerable people with adequately heated homes. The organisation opted to keep its Oracle CRM software in-house because government clients demanded Eaga had exceptional disaster recovery and security procedures, explains business change director Chris Williams. "It's far easier for us to do that ourselves than try and manage a service provider," he says. In addition, Oracle's CRM hosting centre is based in America, which would have breached some of the data handling regulations Eaga is bound by.

The bottom line is that hosted CRM makes this technology affordable for more businesses than ever before. The choice between hosted and in-house software should be made once you have balanced up all the costs, risks and integration issues -- but don't assume that your business can do without CRM. "This software is about doing the small things well," says Kwiatkowski. "It's about understanding what customers want and addressing those issues and applying the lessons to the future. And that applies to all companies, no matter what size."