“Enormous potential is dormant in CRM on-demand,” says Christian Glas, senior consultant at PAC, with conviction. The American or British markets have seen a real wave of movement toward CRM on-demand. But in Germany, as in France and Italy, reactions have been more reluctant thus far. Yes, such solutions have existed for a few years on the European market and according to the PAC analysts, CRM on-demand will play a crucial role in the next few years. But the PAC study “CRM 2006 Germany” indicates that revenues with CRM on-demand have been rather small so far in Germany.
On-demand or on-premise?
With an on-premise CRM solution, a company purchases an in-house CRM solution that it is responsible for operating itself. Examples of such solutions include a product of a software manufacturer or proprietary software. With CRM on-demand, however, a company uses a supplier’s solution, without owning its own installation. The supplier handles hosting, operations, maintenance, and development. The company simply works with the application and pays a fixed fee set by a pricing model.
The advantages for customers? On-demand CRM solutions are generally easier and faster to implement, are operated more easily, and require less maintenance effort than on-premises solutions. But there are differences, depending on the size of the company, the industry, and the solution. The CRM on-demand model is less suited to industries with very specific and individualized processes, such as financial services, marketing, and customer service. “In sales and distribution, however, the limited flexibility of such a solution is completely sufficient. The processes are less vertical and therefore require fewer modifications,” explains Glas. The ability to integrate also plays an important role. “In the financial area, integration with the core system and processes would take a very long time because the systems are often obsolete,” he adds. “But a small company that wants to work with CRM for the first time would probably have only a very limited need for integration.”
In the short term, CRM on-demand solutions save costs. “But in the long term, an on-premise CRM solution is often a better way to go because the usage fees for a CRM on-demand solution remain constant over time,” explains Glas. In addition, complex CRM projects often require significant investments in time and effort because of the need for modifications; the costs often differ little from those of a standard solution. And it is often very difficult to customize on-demand solutions. “If you stay close to the standard, CRM on-demand is an interesting alternative,” says Glas. “In general, anyone who examines CRM as a decisive competitive factor will find that on-demand solutions do not always map individual requirements. But anyone who uses CRM to accelerate operating processes, consolidate customer data, and enable access to customer data is well served with an on-demand solution,” summarizes Glas.
The small difference
In the United States CRM on-demand has been recognized for many years. “In the United States, users have an easier time accepting the concept,” says Peter Russo, a consultant at PAC US. In fact, many American companies invested in the innovation of CRM without a hard enough look at the costs and benefits – often with disappointing results. But they learned from their mistakes and are once again investing in CRM – but only with a detailed cost analysis and looking at the return on investment.
Despite the considerable potential that PAC sees for CRM on-demand in Germany, the German market has so far proven a tough nut to crack for suppliers of such solutions. “That’s partly a matter of mentality. The German market always needs more time to accept innovations. Even outsourcing developed much more slowly in Germany than it did in the United States or in England,” says Glas. “And many German companies that already have an ERP system generally select a solution from the same manufacturer rather than going with a different supplier,” adds Glas. And it is often problematic for German firms to pass their confidential customer data on to third parties, especially when CRM belongs to their core competencies.
Another difference? The role of SAP. “SAP very strongly influences the German market. In general, German companies first wait to see how the software manufacturer reacts. That’s why foreign firms have an especially difficult time establishing themselves in Germany,” explains Glas. “SAP solutions enjoy a great deal of trust. When SAP offers a solution, it must be worthwhile.”
American suppliers of CRM on-demand solutions see themselves differently than European suppliers do. “They see themselves a part of a group of strongly consumer-focused e-business suppliers like Amazon, eBay, or Google. End users think of those companies as solid and secure,” says Russo. “That gives American suppliers of CRM on-demand a kind of trust bonus that gives them a much better starting position than their European colleagues.” They also advertise their solutions much more to establish their platforms for all business applications, such as customer-specific development, partner solutions, or enhancements created by end users.
Not only differences
CRM on-demand lies within the domain of midsize companies in both the United States and in Europe. “In general, the model is appropriate for small and midsize companies. It takes only a little effort to adjust the standard processes stored in the solutions to the simpler and unspecific processes of this size customer,” explains Russo. And CRM on-demand fulfills the desire of midsize companies for simple, user-friendly, and cost-effective solutions. And less need for maintenance is just as important: many IT departments are unfamiliar with CRM.
The model is also interesting as a temporary solution for large companies that are planning a CRM project over the long term, but that want to being using some functions immediately. Firms just starting out with CRM can adopt an on-premise solution at a later time. And large companies can also introduce CRM on-demand for individual subsidiaries or business areas. But when an ERP solution already exists as the core application, realization of a groupwide CRM on-demand strategy is hardly conceivable. “Companies in this situation would be better off with an on-premise solution to have everything from one source and own a mature, on-premise environment,” explains Glas.
What does the future hold?
More and more software suppliers are offering on-demand solutions. “CRM suppliers can hardly consider themselves innovative and up-to-date without an on-demand solution in their portfolio. Users have come to expect that such companies provide such a solution,” explains Russo. “But that does not by any means mean that the demand for CRM on-demand is any stronger,” he adds. According to PAC, the outlook for CRM on-demand is not bad. “We assume that CRM on-demand solutions will have a good chance in the future, especially among midsize companies,” adds Glas.
For SAP, the analysts foresee positive developments in the markets for on-demand and on-premise solutions. “SAP can score a lot of points against its competitors with CRM on-demand solutions because the software supplier enjoys stable trust from users,” explains Glas. “That’s certainly an advantage over newer suppliers of on-demand solutions,” he adds. SAP has a good hand to play with its CRM on-demand solution if mySAP ERP is already implemented as a core application. Glas assumes that the SAP on-demand solution will primarily be used so that users can quickly familiarize themselves with the SAP solution and enjoy its initial benefits. But the goal in most cases would be to convert to an on-premise solution in the medium term.
According to PAC estimates, CRM on-demand solutions will not replace in-house solutions in the United States or in Europe. “Even though the hype about CRM on-demand is very strong right now, we do not assume that only an on-demand world will exist in a couple of years,” explains Glas. “There are good reasons for both approaches, depending on the context and the goals. A decision about on-demand or on-premise must be made in each individual case. Both forms will probably exist side-by-side in the future.”