Profitability may be elusive for on-demand CRM

By , IDG News Service |  Business, CRM

Such a
development -- which may have begun on Wednesday, with rival NetSuite's announcement of a discount deal for Salesforce customers who defect -- could further crimp profits.

Meanwhile, a much smaller on-demand CRM vendor also reported business is stable.

Troy Muise, CEO of in Halifax, Nova Scotia, said his company is essentially breaking even, but deliberately so, as it chooses to invest revenue back into the product for now.

Salesboom has 4,000 customers and aims at small and medium-sized businesses and departments within large companies, he said.

Muise and his co-founder self-funded the company, which was formed in 2002. "Being independent has its advantages in times like these," he said, adding that even without the Entellium executives' alleged fraud, that company may have had trouble getting an additional round of venture capital given the weak economic climate.

Salesboom focuses on growing its customer base through referrals, not advertising, he said. "We're a different animal than the massive companies. I don't have that kind of budget. I can't play that game."

But Muise argued that Salesboom's size enables it to stay closer to customers and their needs, helping its retention rate. "When you're big and fat and not nimble anymore, and you're drunk off your own success. ... that is when your churn goes up," he said.

One industry observer said the profitability question doesn't apply across the board for on-demand vendors.

"One of the things we forget about when we start talking about profitability is that all companies aren't the same," said Denis Pombriant, managing principal of Beagle Research Group in Stoughton, Massachusetts.

Emerging companies should be focused on reinvesting in the company rather than taking profits, according to Pombriant.

"Fundamentally, if you do any kind of long-term economic analysis, emerging on-demand companies today are doing exactly what they should be doing," Pombriant said.

However, he agreed with Datamonitor's points regarding vendors' need to build out a sales channel and diversify their products over time.

"That's very classic company maturation," he said. "[But] the other thing that is very important for companies to figure out is if long-term, what they have is a whole product, or is really in the future going to be a feature of some other larger product set. ... Is a company going to acquire, be acquired, or go out of business?"

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