CRM: To host or not to host

ITworld.com |  Software

With Microsoft Corp.'s forthcoming CRM (customer relationship management) software drawing headlines and renewed industry attention to the CRM sector, several growing ASPs (application service providers) are seizing the opportunity to evangelize about the advantages of hosted CRM deployments, a model analysts say remains a small market, but one that is making significant headway in customer acceptance.

UpShot Corp. founder and Chairman Keith Raffel has launched a PR offensive around Microsoft CRM, charging that the product will "give a black eye to the entire CRM industry" by perpetuating an architecture he sees as fraught with problems -- the client/server model of installing code on both a server and on end-user PCs. Salesforce.com Inc. Chairman and Chief Executive Officer Marc Benioff is equally outspoken, often voicing dire warnings about the implantation risks and management costs of traditional CRM software.

Both back instead an ASP CRM model, with outside vendors installing and maintaining software on their own servers, which customers access remotely, generally via the Internet through a browser.

On its part, Microsoft says the criticism leveled against its CRM application is misleading, not least because the software giant plans to offer, via resellers, hosted versions of the product.

Nevertheless, at the moment Salesfoce.com and UpShot lead the emerging market for hosted CRM, according to analyst Denis Pombriant, managing director of Aberdeen Group Inc.'s CRM practice, in Boston. And their efforts to prove the ASP CRM model are paying off, he said: Aberdeen forecasts 96 percent year-over-year growth in the hosted CRM market in 2002, with worldwide sector spending climbing from $60.6 million in 2001 to $724.5 million in 2005.

That's a slim percentage of the $27.8 billion in total CRM spending Aberdeen forecasts for 2005, with $7.7 billion spent on applications and the rest coming from integration services and related hardware. But while absolute revenue for the sector may remain small, the best way to gauge the impact of hosted vendors is by the number of customers they attract and number of CRM seats they deploy, Pombriant said in a report. By the end of 2001, salesforce.com had 56,000 end users; UpShot had 15,200, Aberdeen estimates. It also predicts both will double their 2001 revenue in 2002.

The core of CRM is sales-force automation software, which is used for tracking and forecasting sales. Modern CRM suites tend to also include an array of complementary modules, such as customer service, help desk, partner management and marketing software.

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