CRM As an Online Service

"We offer the power of Web services, but totally online--no software, no hardware," says Marc Benioff, president and CEO of Salesforce.com and a former Oracle executive. "When all is said and done, three business

models will demonstrate that the Internet has changed the world--PayPal, eBay and Salesforce.com."

Can those start-ups actually compete in the Web-services field with mammoth vendors like Siebel, Microsoft and Oracle, and duke it out with elite ISVs intent on making their applications more Web-friendly? It won't be easy, of course, but companies such as Upshot and Salesforce.com have the first-move advantage, impressive offerings and a clear vision of software as a service. That vision might be the most crucial benefit, because many believe the Web-services shift is on, and there's no going back.

"Software as a service is here, and it's time for companies to start changing how they get their software," says Jason Masciarelli, CEO of Theikos, a Boston-based solution provider . Here's how that could mean big business for the channel.

In With the New

UpShot, an online CRM solutions company in Mountain View, Calif., started in the late '90s, when enterprise-level and even midmarket businesses were spending millions of dollars on complex software that took months to deploy.

"Two years ago, a CIO didn't care if a CRM installation cost $5 million," says Keith Raffel, UpShot's chairman and founder.

The tide changed drastically last year. Few markets thrived during the economic slide of 2001, and those such as UpShot that have managed growth have often embraced a less costly business model. The method for success is deceptively simple. Those companies offer the functionality of CRM, but without the actual software code and license. The functionality, which requires minimum integration and allows increased customization and flexibility, is delivered as a service via the Internet.

Emerging online CRM service providers are hard to define because they incorporate bits and pieces from the Web-services, ASP and traditional software models. In fact, industry analysts have had a tough time classifying UpShot, SalesNet and Salesforce.com. Some call them ASPs or Internet business service providers (IBSPs), while others call them Net-native software vendors. Whatever the term used, most analysts are impressed.

Boston-based SalesNet says its sales for the first three quarters of 2001 increased more than 8,000 percent from all four quarters of the previous year, taking on brand-name clients such as Staples with its Sales Process Management Web service. In a report published late last year, Summit Strategies analyst Laurie McCabe wrote that such IBSPs are racking up impressive customer wins against established software vendors by offering software as a service that features better ease of use and a much lower price point.

The big guys, such as Siebel and PeopleSoft, will have to watch their backs. Last June, Forrester Research reported that Salesforce.com, UpShot, SalesNet and other Net-native CRM companies were infringing on Siebel's territory by offering sales-force automation services with better scalability and customization and a cost of ownership that was half of traditional software licensing fees for client servers. Low pricing has customers drooling, too. Salesforce.com's Professional Edition for small and midsize businesses, for example, is an eye-popping $65 a user per month, while the Enterprise Edition is offered for $125 a user per month.

Enterprise Explosion

Initially, these online service providers were seeing most of their business come from small and midsize customers that simply couldn't afford high-priced CRM installations. During the past two years, however, they began to penetrate enterprises with modestly sized pilot programs that eventually grew. Salesforce.com has signed on brand names, including Siemens, Fujitsu and USA Today, while UpShot has attracted such blue-chip customers as Hewlett-Packard, Xerox and American Airlines. "We have 1,000 seats with HP now, but we started out with just 70 seats with the first project," Raffel says.

And it's not just the tremendous cost savings that are attracting customers. Fast deployment, with implementation cycles of 30 to 60 days, is a key

driver for online CRM solutions. The message of quick-and-easy CRM installation is resonating with customers, Theikos' Masciarelli says.

"We've got a financial-services client with $2 million reserved for a CRM project, so the money's there,that's no problem," he says. "[But they want quicker deployment, and the software vendors can't offer that."

This year, UpShot and Salesforce.com are targeting larger projects, offering enterprise customers higher-end services and better integration technology. UpShot

recently released UpShot eXtended Edition (XE) for enterprises with more than $1 billion in revenue. UpShot's XE services include new integration capabilities that connect the service with other applications and systems via XML and Microsoft's .NET platform, as well as a workflow engine and improved customization.

Salesforce.com has begun targeting enterprise customers with more than 1,000 sales personnel. The San Francisco-based company recently launched its Enterprise Edition. Along with sales-force automation and customer-support services, it features more advanced CRM functionality, including product-revenue, recurring-revenue and annuity-revenue tracking, and high-end integration to other critical business systems.

"Our goal is to demonstrate that Web utilities are much more successful as a model than traditional software, and we're extending our product line to sign up

larger customers so we can demonstrate that," Salesforce.com's Benioff says.

Both UpShot and Salesforce.com have also enhanced their offerings with "offline editions" that let users update and process information through their respective CRM services without being online.

Channel Charge

Although there's no software to integrate, there's still plenty of business for the channel around online CRM solutions. While delivering online CRM services may dramatically decrease integration, it won't eliminate the process completely. In addition, shorter deployment cycles allow solution providers to focus on consulting and actually building complementary solutions for the customer instead of heavy integration tasks that could take nine months to a year to complete.

Fullscope, an Ann Arbor, Mich.-based solution provider, teamed with UpShot to combine the IBSP's salesforce-automation service with Fullscope's collaborative engineering solutions and professional services for the manufacturing industry last year. Fullscope CEO Don Springer says offering a CRM service rather than software cut integration time dramatically.

"There's always going to be a need for solution providers to integrate systems with Web services, but not all of a customer's systems are going to be based on Web services," Springer says. "With [UpShot's online CRM service, it's a matter of weeks to deploy, as opposed to months."

Salesforce.com has an estimated 20 U.S. channel partners and a number in Asia-Pacific as well. With enhanced integration technology of its own, Salesforce.com is focused on bringing in resellers that can develop solutions connected to the CRM service. Theikos, for example, recently installed a Web-services solution added on to Salesforce.com's CRM service for a joint customer. Salesforce.com also announced a major partnership with TIBCO in February that will show off the CRM company's integration capabilities.

UpShot has some 20 channel partners, but the company says that number will grow. Raffel sees solution providers as a way to tackle larger deals, especially at the enterprise level. "We've got some deals right now in the channel that are 600-seat projects, including a pilot program with a Fortune 10-size company that's expected to grow to 1,800 seats," Raffel says. "In the CRM space, there's a channel out there,and you'd be crazy not to use it." n