Hosted CRM is Next Big Thing

HOSTED applications represent the fastest growing segment of the customer relationship management market, and this trend will accelerate with the recent release of an on-demand application by German enterprise software maker SAP.

In 2005, analyst Frost and Sullivan says, revenue from hosted CRM applications in Australia totalled $13.2 million, or 13 per cent of total CRM revenue.

Frost and Sullivan predicts that will increase at a compound annual growth rate of 40.5 per cent, to reach $51.2 million by 2009, and account for 35 per cent of CRM sales.

Whereas rivals and NetSuite initially targeted small and mid-sized businesses, SAP Australia-New Zealand CRM head John Goldrick says his company’s software is aimed at large enterprises that traditionally purchase on-premises software.

Goldrick denies the new product would cannibalise revenue from SAP’s existing business. The on-demand product was developed from customer calls as a means of rapidly providing CRM, but with the capability to move to a traditional on-premise version at a future time, he says.

This appeals to large organisations with new or rapidly expanding business units that require a product quickly, as the application can be up in running within a week.

"It’s a best fit for customers," Goldrick says. "If they want to go beyond what is capable in on-demand, where they want to build processes and capabilities that are very specific to their organisation, or their growth gets to the point where cost-of-ownership says it makes more sense to go on-premises, we want to give them a starting point for an on-premises system."

He denies claims by and other rivals that SAP was late to market.

"The term, late to market is an interesting one for SAP, because everyone says we were late to market with our CRM product initially," he says. "Now, within our peer group we get 47 per cent of market share."

Rival enterprise CRM developer Oracle is continuing to integrate its four-year-old Oracle On Demand product with other on-demand products it acquired in the purchase of Siebel Systems in 2005.

Frost and Sullivan ICT research director Foad Fadaghi says acceptance of the on-demand model is growing among corporate clients, who now comprise 30 per cent of the on-demand market.

Purchasing decisions are increasingly being made by more senior executives, he says.

"That’s why SAP has had to react in a defensive manner to meet the needs of the mainstream market," Fadaghi says. "That market is demanding hosted products." Asia-Pacific marketing vice-president Doug Farber says companies such as SAP and Oracle has been unable to adapt from its traditional model of building and selling massive, complex pieces of software.

"You have to be very service-oriented, you have to be very proactive with customers for relatively low-cost transactions," Farber says. "These guys have highly leveraged sales organisations with highly paid reps who are not going to go out and hustle to close small transactions."

However, has increasingly been targeting the same group that SAP is chasing. The company has grown from three staff to 20 in Australia in the past 18 months to increase its service delivery capabilities.

"Larger organisations are knocking on our door, so we’re becoming conventional as a CRM decision," Farber says. claims more than 400 local customers, while NetSuite claims 150. Fadaghi says the bigger threat for and other mid-tier suppliers will come from Microsoft’s on-demand CRM product, which offers subscription-based licensing to partners that deliver hosted systems, and from Microsoft’s plans to offer on-demand versions of products such as Office.

"Once that happens it poses significant challenges to players like," Fadaghi says. "Microsoft has 60 million users of Office."

By: Brad Howarth –The Australian