Hosted or On Premise CRM? (Part I)

Traditional CRM comes with hardware, software and, oftentimes, the headaches associated with protracted installations and integration snafus. Hosted CRM offers an alternative: buy access to software on a subscription basis and log on to the apps via the Internet. Sounds simpler, right? But the hosted model presents its own separate set of challenges, not the least of which is wrapping your head around a different approach to getting software. 
 
"It’s a newer model, and it requires people to think outside the box," says Denis Pombriant, vice president and managing director of CRM at Boston-based Aberdeen Group.

Charter Communications Inc., the fourth largest provider of broadband services in the U.S., was perfectly willing to use some imagination if it meant decreasing churn among subscribers. Digital cable customers have a high churn rate due in part to the relative complexity of the product, according to Tom Brockhaus, director of customer retention at St. Louis-based Charter. "There’s a learning-curve issue that we needed to address," says Brockhaus, citing the more complex remote control and interactive guide that digital cable users must learn.

Charter launched a campaign to reach out to customers early in their life cycles and address their concerns before dissatisfaction led them to downgrade to the analog tier or disconnect their services altogether. Later that year, Charter had signed with Salesnet Inc.’s subscription CRM service. Charter used Boston-based Salesnet to route calls from its third-party telemarketing vendor to the appropriate customer service rep, record the answers customers received and the feedback customers gave, and run reports on the results.

Customization Restrictions
Charter elected to make some changes to the Salesnet offering, including revisions to the nomenclature in the fields that customer service reps see.

However, one downside to hosted CRM is that it typically does not allow for the creation of a great deal of custom code. "More often than not, a hosted vendor will not allow customizations," Pombriant says. He also states that some hosted providers offer very flexible architectures that enable users to dictate the attributes and behaviors of the system at a high level without programming.

Enter Customforce, the innovative point-and-click customization tool from salesforce.com, allows anyone to fully customize CRM and create new on-demand applications in minutes. Now any company can enjoy a CRM solution that precisely meets its business requirements and reflects its unique competitive advantage. With just a few mouse clicks and without technical skills, business users can create custom tabs and objects, custom fields and layouts, custom workflow, and much more.

Cost Savings
Hosted CRM is largely viewed as a cheaper alternative with a simpler pricing structure. Some providers charge a start-up fee and then price access to software based on the number of users who need to use the system each month.

Aberdeen’s research shows that hosted solutions can be as much as 80% to 90% less expensive. Also, end-user companies don’t have to worry about complicated software licensing plans or costly software upgrades. Providers deliver software upgrades — such as improved functionality and enhanced user interfaces — over the Internet.

In cable television, where the market is more than 70% penetrated, the price differential makes a necessary program affordable for companies like Charter, which now thinks Salesnet "has paid for itself."

3 common concerns about hosted CRM 
There are a few pitfalls to watch out for if you’re considering a hosted application. Denis Pombriant, vice president and managing director of CRM at Aberdeen Group, enumerates a few of the more common concerns and describes how hosted vendors have addressed them:

  1. Security and stability – How secure can an application be if it doesn’t live on your servers? Very, according to Pombriant. "In many cases, vendors offer better security than a lot of small, medium and even some large organizations can afford to do on their own." Service-level agreements stipulate the physical, password, data and access security of the applications, as well as specifying how much uptime the subscriber can expect from the system.
  2. Integration – Hosted vendors, says Pombriant, are only beginning to tackle integration issues and are showing "great progress."
  3. Wireless access – Especially for sales force automation, "the big drawback" for hosted vendors used to be the absence of versions that could be used in the disconnected mode, says Pombriant. That started to change within the last year. Pombriant now says that all of the major hosted CRM vendors are working on or have already delivered a disconnected version. Now, sales reps can download data before they leave the office and have it with them on sales calls.

The Future of Hosted CRM
With many glitches behind them, hosted vendors are moving from their initial area of concentration of sales force automation to developing full-function CRM suites, including financials. "I don’t think there’s a good reason why, down the road, everybody can’t use software applications the same way they use electricity," Pombriant says. "You don’t generate your own electricity…. And I think we’re moving toward a time when it would be very easy to have software delivered as a utility."

1 thought on “Hosted or On Premise CRM? (Part I)”

  1. Alot of good points are raised in this post. The whole issue of customizability is one that’s very much a hot topic in the industry. Personally, I’ve always defined software configuration as something that can be completed by someone without any programming skills or knowledge and customization as something that needs to be completed by software programmers. Using these definitions some solutions (like salesforce.com) are extremely configurable whereas many other solutions, although highly customizable, are not very configurable. Because of the dynamic nature of CRM needs within an organization, I’ve always had a bias towards highly configurable solutions.

    For more on this topic see:
    http://www.crmmastery.com/weblog/2005/05/12.html#a301

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