CRM buyers, already burdened by understanding the differences in functionality between applications, the complexity of integration requirements and the various costs associated with the product are now facing another variable -- how they purchase the software.
Traditionally purchased in bulk licenses with maintenance and support costs added on from year to year, CRM has also been available for several years as a utility where companies pay for the software on a per user per month basis. And last month, Sage Software, a subsidiary of the London-based Sage Group plc, spiced up the selection process when it unveiled a rent-to-own option. The program rebates users 50% of their hosted subscription fees if they move from Sage's hosted software to one of its on-premise suites within 12 months.
"Companies are already looking at different pricing models, especially with service-oriented architectures," said Sheryl Kingstone, CRM program manager with Boston-based Yankee Group. "That's more of a pay-for-what-you-use, which is along the lines of the utility model."
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Web services promises a future where applications can be bought as components and easily tied together through a common architecture, but users -- and vendors -- are now investigating new pricing models. With its own service-oriented architecture (SOA) on the way, all of Siebel Systems Inc.'s products will eventually "be on-demandable," according to the head of the San Mateo, Calif., company's hosted and small and midsized business (SMB) unit. Bruce Cleveland would like to offer as many deployment options as possible.
"I'd like to bifurcate how you buy from how you deploy," said Cleveland, senior vice president and general manager of OnDemand and SMB. "I'd be interested in [offering] a menu of options -- term pricing, rent to own, subscription."
However, such a move requires not just demand from CRM buyers and a willingness to offer flexible pricing by vendors, but the help of Wall Street as well. Investors have historically measured a software company's health by license revenues.
"We need more metrics placed on this," Cleveland said. "The subscription model is a great weapon, but if you don't get to count it [in terms of revenue], you're not going to see people pouring in investment money."
Two hosted CRM providers -- San Francisco-based Salesforce.com and Bozeman, Mont.-based RightNow Technologies Inc. -- went public last year and have helped to pave the way for corporate revenues that are not based on license fees. Long-term buyer commitments should also help to offer some consistency for vendors typically held hostage by potential customers at the close of every quarter.
New pricing offers other distinct advantages for vendors.
"I think there's an opportunity to move to a transactional-based model," said Jonathan Miller, vice president of product marketing for San Mateo, Calif.-based Epiphany Inc.
In large-scale deployments, with an organization like a bank serving 2 billion online impressions, if a marketing technology vendor can improve click-throughs from 1% to 1.5%, at a value of $4 a transaction, that gets into hundreds of millions of dollars, Miller noted. But the transaction-based model is still just an interesting -- and untested -- idea.
"Some users like the fact we're willing to talk about it, but when it comes time to sign the contract, they want a traditional contract," he said.
Whatever the structure for delivering CRM technology, price remains a top decision-making criterion for buyers, Kingstone said. However, buyers must heavily weigh the total cost of ownership. For example, with an on-premise application license, costs are only 9% to 14% of the total cost, according to the Yankee Group.
"You've got to figure out where the deal is and what works for you," Kingstone said. "It depends on how you run the numbers. You don't necessarily need subscription. You have to take into account how long you're going to own the application and the annual cost."
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