Is the future of CRM in the Cloud? - Part 1

CIOs must decide between on-premise and Cloud-based customer relationship management applications. If they don’t, chances are the business will decide for them

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It is just on 10 years since Salesforce.com unveiled the first preview of its customisable online customer relationship management (CRM) software at the annual DEMO conference in California. DEMO had previously been the launch platform for ground-breaking technology such as Netscape Navigator, Sun’s Java and Adobe Acrobat, but attendees in February 2001 would have had little idea that they were witnessing something that would turn the world of customer management software — and enterprise software generally — on its head.

While Siebel Systems owned the high end of the CRM market in the late 1990s, Salesforce.com was able to sneak in the back door with a solution that could be accessed over the Internet and rented on a monthly basis.

Salesforce.com founder, Marc Benioff, and Siebel Systems founder, Thomas Siebel, had been colleagues at Oracle Corporation in the 1990s. Today Salesforce.com is expected to turn over $US2 billion for its 2012 fiscal year, while Siebel was bought by Oracle in 2005.

Because of Salesforce.com’s pioneering work with the software-as-a-service (SaaS) delivery model, the most common question asked by CIOs when selecting a CRM package is not what to select, but whether it should be hosted internally or in the Cloud.

Because there is still very little competition, the price for SaaS apps is high

According to a report released in December 2010 from analyst firm Frost & Sullivan, among the 37 per cent of Australian organisations that have adopted Cloud computing, CRM is the most popular application.

Other CRM packages have found their way into the Cloud, including those from Oracle, SAP and NetSuite. In January Microsoft announced availability of its Dynamics CRM Online in 40 markets outside of North America, and in February launched an on-premises and partner-hosted version of its updated Dynamics CRM 2011.

When it comes to selecting a model, vice-president of research, customer strategies and technologies at Gartner, Michael Maoz, says SaaS applications are, by definition, more modern.

“These applications are highly scalable, with workflow components, declarative configuration capabilities, and also provide the entire development platform as a service,” he says. That is not to say that they are perfect, however. Maoz says that one of the critical considerations is whether the CRM application needs to be integrated with other on-premises business systems.

“The issue is the latency that can come when an application whose logic is sitting in the Cloud has to make requests from applications distributed across a network,” Maoz says. “There is additional burden when the information comes from systems that have their own synchronisation and timing. The more real time connectivity required, and the higher the interaction volumes, the less attractive the SaaS or Cloud system compared to on-premise.”

Much is made of the Cloud’s ability to negate the need for hardware and software licences, but Maoz points out that rarely do Cloud companies discuss the long-term advantages of their systems.

“There may not be a long-term advantage,” Maoz says. “Today there is very little competition in each area — there is usually one dominant company per segment. Because there is still very little competition, the price for SaaS apps is high.”