CRM: To host or not to host

IDG News Service - With Microsoft Corp.'s upcoming customer relationship management (CRM) software drawing headlines and renewed attention to the CRM sector, several growing application service providers (ASP) are seizing the opportunity to evangelize about the advantages of hosted CRM deployments -- a model that's making significant headway in customer acceptance even though its current market is small, analysts said.
UpShot Corp. founder and Chairman Keith Raffel has charged that Microsoft CRM 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 CEO Marc Benioff is equally outspoken, voicing dire warnings about the implementation risks and management costs of traditional CRM software.
Both instead back 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.
For its part, Microsoft said the criticism is misleading, noting that it plans to offer hosted versions of the product via resellers.
For the moment, Salesforce.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 prove the ASP CRM model is paying off, he said: Aberdeen forecasts 96% 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. Although 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 the number of CRM seats they deploy, Pombriant said in a report. By the end of 2001, San Francisco-based Salesforce.com had 56,000 end users and Mountain View, Calif.-based 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 customer service, help desk, partner management and marketing software modules.
Introduced in the late 1990s, the notion of CRM as a service was initially targeted at small companies most likely to swallow concerns about data security and uptime in exchange for a low upfront investment and