Think on-demand CRM and the first name that will probably pop into your head is Salesforce.com.
Thanks in part to the firm's loquacious chief executive Marc Benioff and its "no-software" marketing message, the fledgling hosting company has been grabbing all the headlines in the customer and sales space.
But as much as Salesforce would like you to believe they originated the CRM on-demand concept - Benioff claims the idea came to him after watching Amazon's success in the consumer space - other companies have been at it a lot longer.
Montana-based RightNow Technologies has been pushing hosted CRM services since 1997 and boasts customers including William Hill, British Airways, Roche, Easy.com, Experian and Nationwide.
Interestingly, its core competency within CRM is almost an exact mirror of Salesforce.com. RightNow specialises in customer service and marketing applications but recently launched a sales support product. Salesforce.com has up till now been focused on sales-side applications but recently announced a customer-support product.
The end game of both companies and the other players in this field is to be the de facto CRM player - offering the complete range of products. RightNow claims it is already there and some analyst firms concur - Gartner released a report recently claiming RightNow is up to two years ahead of Salesforce.com when it comes to product development.
But Salesforce.com is not RightNow's only concern -- entrenched incumbents such as Siebel are not going to let the on-demand players have it all their own way. And don't forget Microsoft. The software giant's Business Solutions division is clearly focused on tearing off a chunk of the small to medium-sized business application market for itself.
ZDNet UK sat down with RightNow's chief executive and founder Greg Gianforte to talk about surviving the first application service provider (ASP) purge and the future for on-demand.
There was a lot of momentum around application service providers and CRM around the time of the dot-com bubble which quickly soured after the slump. What has changed to restore companies' faith in this technology?
In the first go-around the applications weren't written for a multi-tenant architecture. Essentially they were taking client server apps, taking a rank of hardware out of the client's location and putting it in a co-lo facility, adding a margin and charging the customer back. What is different this time is that the applications have been written from scratch for a multi-tenant architecture. The only way you eliminate all these costs is by sharing the infrastructure across thousands of customers.
The second piece is that in the first generation, application service providers tended to be third parties that were hosting somebody else's technology. But in the second generation, the software provider themselves is the ASP. That allows you to do things from an economy of scale perspective and an instrumentation perspective; that allows you to achieve much higher levels of reliability and it can be an inherent part of your value proposition. Our cost to host is 6 percent of our top line - which is less than our tech support costs.
Any company that uses a third party to host, such as Microsoft, SAP, PeopleSoft - you can just list all the dinosaurs - they have failed the litmus test because they are not really believers. Until they re-write their applications from scratch and use it as a primary go-to-market they really haven't embraced this model.
How big a threat do you see Microsoft in the CRM market?
They have a lot of resources but the structural impediment they have is that at its heart, this on-demand model is about eliminating infrastructure - Microsoft's core business is selling infrastructure. To really embrace this model, Microsoft has got to be prepared to cannibalise its core business.
How close are you to achieving a complete hosted CRM suite?
We started on the more complex side of CRM – the customer service side. First with e-service, then it grew into the call centre and we started to displace Clarify, Vantive and Remedy. Then it was just last month that we introduced the full CRM suite. Gartner and Forrester claim that we are the only vendor that has a full CRM suite today on the on-demand model. No-one else has full campaign management today – they have to use third-party products to get the rest of the functionality.
The others are pushing towards that – that is the end game of the likes of Salesforce.com.
I understand that is their direction.
Do you think they will achieve it?
I think if you look at the first generation of CRM, then Siebel won. What strategy did they pursue? I think it's interesting that their largest business has always been customer service because that is the higher value problem within the organisation; it is more complex, the products are stickier. In many senses the CRM business is like winning the West -- it is easy to put tee-pees out on the plains but much harder to build a fortress up in the hills. Building CRM for seven years, we have been carrying blocks of granite up into the hills and building this fortress. These tee-pees have been popping up all over the place but in most organisations more customer touches occur in customer service than in sales.
Have you always been using the on-demand model?
We have always offered on-demand and on-premises which I think highlights something interesting -- four years ago, half our customers were using the on-demand model; today, more than 90 percent of our customers are using the hosted model. We don't charge for hosting – the price a customer pays is identical if we host it for them or they put it on their own hardware. Our profit margin is actually nominally higher if we host it because if they put it on their own hardware we have to provide technical support to keep the platform going.
Are your larger customers adopting the on-demand model? The perceived wisdom is that on-demand CRM doesn't work for large enterprises because of the integration issues?
We don't see any correlation between propensity to adopt and size of company, in fact over 40 percent of our revenue comes from organisations with greater than $1bn in revenue. Around 50 percent comes out of the middle market and 10 percent comes out of government. Interestingly, here in the UK we have 26 government agencies using our solution, borough councils, the tube, central government organisations – are all using it to deliver better service to citizens.
Is it right to say there are not as many integration issues around customer service applications compared to sales applications?
There are a lot more. Here's the difference: in a sales application, the sales rep uses the application for 30 minutes a day because they are just out selling. In a customer service environment, the agent is in the application eight hours a day – essentially this is their desktop. The vendor has to deliver a desktop that allows that agent to answer any question a customer may ask. For example – where is my order? That financial transaction data tends to be stored in the accounting system so we have done integrations with SAP, and with Oracle financials.
There are myths promulgated by the dinosaurs in an attempt to preserve their existence. By dinosaurs I really mean the traditional enterprise software vendors. They say, "Oh well, you can't integrate," well Web services really removes the location of the data centre as an issue when doing integrations.
"It's not secure" is another claim. Well, ISS is a customer of ours, we host their solution. They also say, "Well, you can't customise it" -- we have customers like Nike and Proctor & Gamble, who are very brand conscious, we provide the source code for the presentation layer of the application and they can do as much customisation as they want. "They say you can't tolerate the vendor upgrading it whenever they want," -- well four years ago we built an application called HMS – hosted management system – where we are the only on-demand vendor which allows their clients to determine when they get upgrades and whether they take upgrades at all. In a 24x7 call centre you can't use a Frankenstein switch at the headquarters to do all the upgrades all at once.
Gartner claims your technology is about two years ahead of the likes of Salesforce.com – what do you put this down to?
Unlike a sales application, our application is customer-facing – not to our customers but our customers' customers. So we have had to worry about and solve hosting problems that everyone else in the on-demand space has not had to even think about yet. In Q2 we served 110 million consumers, in Q3 we served 140 million, so on annual basis it's almost 600 million consumer interactions. You think about the scalability needed to do this and interestingly we are doing almost all of it on open source. We run on Linux, we run on MySQL – we could easily be the largest MySQL installation in the world in terms of transactions, or billions of queries a month.
What's your feeling about open-source CRM systems – the likes of SugarCRM for instance?
Success at CRM is 30 percent technology and 70 percent people and process issues. We have a model where we engage with our clients to understand their business requirements and then help them redesign the workflow in their business to get value out of the solutions – technology does not do that by itself. It's an interesting idea to get something for free but it's usually worth what you pay for it.
Novell's chief executive Jack Messman talks about this rising tide of commoditisation that is currently lapping around the OS layer but will eventually reach the business application level.
I am not so sure. We are a big supporter of open source. We get huge economies of scale from running Linux and a whole bunch of other things at the infrastructure layer. I agree that open source is commoditising the infrastructure layer but the value from CRM applications comes from the knowledge of the best practice not from technology itself. The technology is an enabler and it is necessary but it is not sufficient.
So is the eventual aim to make the business completely on-demand – is that the way you are pushing things?
When we go into a client we don't mention on-demand at all. What we talk about is call-centre efficiency, improved customer satisfaction and increased revenue, that is what we are selling and oh by the way, we deliver it in on-demand so it costs you a lot less. We sell a lot more on-demand solutions because we have an on-premises solution. Over 90 percent of our customers choose to host with us but we don't want to make that a religious argument at the start of the conversation.