Is hosted CRM enterprise ready?

Hosted CRM vendors are playing up their big business credentials, but a recent Gartner report suggests otherwise.

Contrary to what some hosted CRM providers may have you believe, not all enterprise businesses are ready to jump

on the on-demand bandwagon.

Companies with complex sales processes often need more than what hosted CRM can offer, said Rob DeSisto, an analyst with Stamford, Conn.-based Gartner Inc. This is particularly true with complex deployments of San Francisco-based Salesforce.com, according to DeSisto.

"We believe they don't provide vertical functionality," DeSisto said. "They say build it through their custom tool kit, but what that does is transfer the expense and the effort to user, making them a software developer. The true TCO [total cost of ownership] comes in building and maintaining it."

Startups and small and midsized businesses (SMBs) have traditionally provided the best market for hosted CRM, thanks to its low initial investment, ease of deployment and the lack of a big IT infrastructure required to support it. But increasingly, established hosted CRM vendors are looking to move into bigger markets. For example, Boston-based Salesnet Inc. is targeting larger businesses because it believes they are better suited to its guided selling approach and San Mateo, Calif.-based NetSuite Inc. recently released CRM+, adding, among other features, order management and partner management, to attract bigger businesses.

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Read how companies are handling growth with hosted CRM

Salesforce.com has touted its success in attracting large companies like Automatic Data Processing and SunGard. Yet, according to Gartner, about 80% of Salesforce.com deployments have fewer than 20 users.

"With the on-demand stuff for large, complex companies, we still haven't seen the adoption," DeSisto said. "It's still very early in the maturity cycle. What we have seen is hosted CRM being very successful in hitting smaller enterprises and getting them up and running quickly."

Large organizations, or businesses with complex sales structures, require three essential things from CRM, DeSisto said; the functionality to leverage their salesforces and the ability to integrate with internal data sources and to extend or customize the application.

Salesforce.com's application, for example, is not sold preconfigured for price approval authorization, high value capabilities such as quote generation and price management, real-time integration with leading enterprise application in areas like billing and debt management or industry-specific functions. The vendor offers sforce software for integration work and Customforce for customization, but that puts the development burden on customers, according to DeSisto.

This can prove cumbersome for large organizations. For example, DeSisto estimates that within three years of a Salesforce.com deployment, more than 60% of large sales organizations will find their costs double due to customization and integration. Complex sales organizations will find beyond three years the TCO for Salesforce.com will be greater than a packaged solution, according to Gartner.

Where hosted CRM, and again Salesforce.com in particular, has done well is getting sales force automation systems up and running quickly and successfully for SMBs. Large organizations often have a great deal of legacy applications and internal data sources that make scrapping them in favor of a hosted tool unlikely.

"Each has complex environments, like an SAP installation, and that's not going anywhere in the near future," DeSisto said. "There are thousands of tables you're going to have to go in and integrate and you can't assume that is going away."

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