Is IBM the real winner in the CRM SaaS wars?

Through partnerships with the top on-demand CRM providers, IBM is clearly positioning itself to take advantage of SaaS popularity.

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While new hosted CRM vendors are springing up daily and industry veterans like SAP and Siebel are making their own splash with their respective on-demand offerings, IBM is emerging as a force in the market for CRM Software as a Service (SaaS).

Earlier this month, Germany's SAP AG unveiled its much-anticipated SAP Sales On-demand. As part of the announcement, SAP said it was partnering with IBM to provide hosting, consulting services and a joint marketing effort. IBM has 5,600 consultants prepared to offer their services to companies exploring on-demand CRM from SAP.

A similar arrangement was announced two years ago, when Siebel also branched out to include not just on-premise software, but on-demand as well. IBM was selected as Siebel's hosting, marketing and consulting partner. While that relationship may be in jeopardy thanks to Redwood City, Calif.-based Oracle Corp.'s recent acquisition of Siebel, IBM maintains a significant foothold in the SaaS CRM marketplace. In fact, between the deals with CRM industry heavyweights SAP and Siebel and its business with smaller firms, IBM just may be the big winner in SaaS CRM.

"At least for now they are," said Rob Bois, analyst with Boston-based AMR Research Inc. "The one major CRM vendor they don't have a relationship with is Salesforce.com, and they've been dinged by recent outages."

Could Salesforce.com's loss be IBM's gain?

Amidst a $50 million effort to upgrade its hosting operation with data centers on both coasts that it has dubbed Mirrorforce, San Francisco-based Salesforce.com has encountered some unexpected problems. A series of outages in the past three months left some Salesforce.com customers unable to access critical customer information for hours at a time. The company recently launched a Web site to keep its customers informed of application performance.

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Learn what SAP's entry means for the SaaS market

However, IBM faces the same dilemma many of Salesforce.com's competitors face in addressing Saleforce.com's data center problems. Criticizing Salesforce.com for its hiccups may gain competitors a momentary advantage, but it reflects on the hosted delivery model as a whole. Salesforce.com's outages may wind up benefiting IBM nonetheless, as users start to think more about what's happening in the data center supporting their SaaS applications.

"The idea behind Software as a Service is ultimately [that] the buyer shouldn't have to worry about the software or the infrastructure but you need to understand who the hosting partner is," Bois said. "In the long term, that goes away as hiccups get ironed out, but for the time being we're suggesting to customers they understand what's going on behind the scenes. SAP going with IBM was smart because it brings instant credibility."

IBM also recently announced a deal to serve as the data center for Bozeman, Mont.-based RightNow Technology's European operations.

"I don't think there are many companies out there running CRM in-house who can say they don't have one or two outages a year," said Dave Mitchell, director of strategy for Software as Services at IBM. "That said, what I think [the publicity about the outages] does is, as customers increasingly acquire applications in the SaaS model, what they really need to think about is what it is running on and where it's hosted. There's an oversimplification that a data center is a data center and anyone can host these things."

IBM gets SaaSy

IBM is not sitting still waiting for major CRM vendors to come knocking. Last week, the company announced a series of programs to promote SaaS. IBM channel partners will now receive a 10% referral fee in return for submitting a lead to a SaaS application provider for the first year of the contract; it is offering free technical workshops for independent software vendors (ISVs) to capitalize on the market; it's providing online courses to transition to the SaaS model; and it's allowing ISVs access to IBM's sales force to close SaaS deals more quickly and gain credibility with customers.

"This is really recognition of the growth of the SaaS opportunity and adoption by our ISV partners," Mitchell said. "What we're doing is making SaaS services a mainstream part of our partner programs for providers."

A recent report from Framingham, Mass.-based research firm IDC has validated IBM's investment. It said 79% of companies it surveyed have used or are considering using SaaS.

The move is an outgrowth of an effort IBM began in 2001 when it left the applications development market, said Charles King, principal analyst with Pund-IT Inc., a Hayward, Calif.-based research firm. It's proven to be a smart move as competitors like HP have had a hard time reconciling hardware, middleware and application development.

"Given the size of the company and the wide range of industries and global markets IBM is in, effectively competing as an application developer in any of those spaces would be fraught with so many headaches it wouldn't be worth the effort," King said. "What [the latest move] reflects is that its hardware/middleware services offerings are acting as an infrastructure. This deal with SAP and the larger effort is just a formalization of that. They're saying, 'use our hardware/middleware and leverage that as the power grid to get your applications to end users.'"

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