AberdeenGroup. Hosted CRM Gains Momentum As salesforce.com Paces the Market. An Executive White Paper. October 2003
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1 AberdeenGroup Hosted CRM Gains Momentum As salesforce.com Paces the Market An Executive White Paper October 2003 Aberdeen Group, Inc. 260 Franklin Street USA Telephone: Fax:
2 Hosted CRM Gains Momentum As salesforce.com Paces the Market Executive Overview Aberdeen Group has previously reported on the surge of customer interest in acquiring and using customer relationship management (CRM) functionality through hosted delivery methods. 1 The most recent Aberdeen report on hosting, Hosted CRM Popularity Continues to Grow But How Far Will It Go? (September 2003), not only confirms the trend but also points to accelerated adoption of CRM as a service. Only a year ago hosting had few vocal supporters even though hosting vendors continued to promote and implement their solutions at companies that needed CRM functionality but were concerned about CRM s reputation for being expensive and difficult to use. The success of those implementations led to effective word-of-mouth advertising, and according to data compiled by Aberdeen research, at some time during the first half of 2003, the industry reached a tipping point, and adoption began to accelerate. In retrospect, the acceleration is not surprising. The CRM industry faces twin challenges in the years ahead as a sluggish economy, combined with executive insistence that new IT projects show quantifiable returns, merge to force vendors to find better, less expensive, and faster ways to deliver the benefits of CRM to users that have budget constraints and who may be skeptical of the technology s ability to deliver value. Much the same can be said of the software industry in general, which has never faced a challenge like the one posed by hosting. This Aberdeen Executive White Paper focuses on the major trends involving hosted CRM today and profiles one of the earliest evangelists of the sector, salesforce.com. Hosting still has its critics, and the solution may not be appropriate for all CRM opportunities, but salesforce.com has done more to promote and extend the model than any other vendor two activities the company continues to pursue with vigor. As the company expands its activities, it continues to win over skeptics. Salesforce.com s evangelizing goes beyond CRM, as its development and hosting services are now available for all software developers. The effects of this latest move will echo through the software industry, changing the way organizations think about and use advanced business software. It s No Fluke Hosting s Popularity Continues to Grow Aberdeen research has now conducted two surveys during 2003 that, among other things, collected data concerning end-user preference, adoption patterns, and sat- 1 See, for example, CRM Spending and Satisfaction Report (February 2003) and CRM s Disruptive Innovation Application Hosting (May 2003)
3 Hosted CRM Gains Momentum As salesforce.com Paces the Market 2 isfaction with hosted CRM solutions. The result of these surveys provides trend data that supports the conclusion that CRM application hosting is enjoying a surge of interest. Furthermore, Aberdeen believes this surge represents a long-term trend developing in the software industry, not a short-lived fad limited to CRM. The Surge Interest in hosting (Figure 1) among prospective CRM users rose from a neutral reading of 52% in January 2003 to more than 85% six months later when Aberdeen conducted a second survey (June 2003). In the June survey, more than 35% of respondents said that they already use CRM as a hosted service, up from 24% in January. Clearly, a tipping point was reached in the first half of In each case the target survey population was the 30,000 subscribers to RealMarket, a premier Web portal specializing in CRM issues and news. Proving the Trend with Customer Loyalty Many prognosticators have taken the position that hosting s main appeal is related to low costs and that the market s fascination with application hosting would fade when the economy returns to growth mode. Certainly, Aberdeen research indicates that low costs of acquisition, implementation, administration, and maintenance are driving interest in hosted CRM, but it is also true that once users experience a hosted CRM solution, they are satisfied with the value that they receive. This satisfaction is driving acceptance and, most importantly, retention. For ex- Figure 1: Would Your Company Consider Using CRM Delivered As a Service When You Seek a CRM Solution? January 2003 No 15% June 2003 No 48% Yes 52% Yes 85% Source: Aberdeen Group, October 2003
4 Hosted CRM Gains Momentum As salesforce.com Paces the Market 3 ample, Table 1 2 highlights what hosted CRM users say about their satisfaction with their decisions they would not readily contemplate a switch to a conventional licensed solution. The Importance of a Complete Suite The survey data also reveals that although hosted CRM may have started in sales force automation (SFA), end-user customers today demand application solutions in all the major areas of CRM sales, service, and marketing and demand is uniformly high for all areas of hosted CRM. In fact, one of the more intriguing findings of this research is that marketing applications show strong interest after several years of soft demand. Some Selling Issues, But No Roadblocks A few years ago hosting faced a critical marketplace full of questions about security and integration issues that slowed and in some cases derailed early deals. Today, the marketplace has decided that there are more things to like about hosting than Table 1 Ranking of Experiences with Hosted CRM Statement Mean Hosted CRM is easy to maintain Hosted CRM is easy to implement Hosted CRM provides low total cost CRM solutions Hosted CRM provides good overall value Hosted CRM applications are easy to learn/train Hosted CRM is easy to administer/manage Hosted CRM provides the functionality I need most Hosted CRM is reliable If cost were not a factor, I would still use hosted CRM I cannot foresee a time when I would switch to a licensed solution Hosted CRM provides all the functionality I need There are some CRM functions I would not trust to a hosted vendor Hosted CRM has been easily integrated with my other apps Source: Aberdeen Group October Based on a scale of 1 (strongly disagree), to 5 (strongly agree).
5 Hosted CRM Gains Momentum As salesforce.com Paces the Market 4 there are concerns. Hosting s benefits and drawbacks (Table 2) are well known and have been debated for more than four years. In general, the benefits that vendors have been promoting are the ones that end-users agree are among the most important, and they revolve around keeping costs low. Low cost of acquisition, fast implementation, and ease of maintenance all boil down to saving money directly or saving time, which translates into the same thing. Likewise, hosting s shortcomings have been well publicized by its critics, and these drawbacks center on issues of security and service delivery. In general, these drawbacks have been solved by a combination of enhanced technology and welldefined rights and responsibilities written into service level agreements (SLAs), providing the degree of comfort that many customers need to move forward with a hosted solution. The market data suggests that the benefits side is winning. Table 2 Hosting s Benefits and Deficits Ranked by Users Statement Mean Hosting has fast implementation time I pay only for what I use instead of an up-front purchase My company requires few resources to manage the solution Support is available and adequate All levels of training are available and adequate to my needs My server and my data are located off-site My CRM must be able to interface with other apps My CRM is only accessible when I am connected to Net A third party stores and controls my data My CRM applications can be configured, but not customized Source: Aberdeen Group, October 2003 Salesforce.com Pushing the Envelope Salesforce.com (SFDC) has been a pioneer of hosted CRM since its inception in 1999, and the company has continually been among the leaders at bringing innovation to this market segment. SFDC has been first, or among the first, to market with a number of initiatives that others have emulated, though few, if any, current hosted CRM vendors have delivered the same breadth and depth of functionality. Among the CRM firsts that salesforce.com has initiated are:
6 Hosted CRM Gains Momentum As salesforce.com Paces the Market 5 1. An integrated suite of CRM functionality, moving beyond its SFA roots, (sales, marketing, service). The newest version of the product is referred to as salesforce.com S3, or simply S3. 2. Tiered functionality and pricing (Personal Edition, Team Edition, Professional Edition, Enterprise Edition) that enable end-users to more precisely match online services to their specific needs. 3. Multiple language and currency support. 4. Specialized functionality versions that exploit new technology or that serve to reduce or eliminate restrictions on hosted functionality, including Offline Edition (with synchronization for working without an Internet connection); Wireless Edition (for wireless Internet connection using Pocket PC, Palm OS, BlackBerry, or mobile phone); Outlook Edition (for close integration and data sharing with Microsoft Outlook). 5. Sforce, a platform that enables end-users to customize, integrate, and extend the salesforce.com S3 application set. 6. A set of wizards that provide guidance and feedback to users to help them optimize their use of the service. Throughout its evolution, salesforce.com has been able to anticipate market demands and build product appropriate to the need it forecasted. These innovations are one reason the company has been able to successfully address hosting s traditional objections. And as one of the leaders in the hosted CRM market with more than 100,000 deployed seats and greater than 7,400 subscribing companies it can be said that salesforce.com s innovations are one reason why hosting is enjoying robust popularity. Today, the company continues to innovate and find ways to add value, making the applications more customizable and more easily integrated with other applications even to the point of making Sforce, the application development and deployment environment, available to other software developers to extend S3 s functionality. Sforce and Enterprise Web Services API Customize, Integrate, and Extend Hosted CRM solutions must interact and share data with other applications, including legacy and third-party applications as well as other hosted systems, to optimally penetrate the market. Early on, SFDC recognized this as a gating factor for hosting s ultimate appeal and worked to reduce these barriers. With the introduction of Sforce, including Sforce Web Services API, SFDC and its partners have brought to market the tools needed to customize, integrate, and extend its applications as well as to facilitate data sharing with other applications.
7 Hosted CRM Gains Momentum As salesforce.com Paces the Market 6 Sforce SFDC refers to Sforce as a client/service platform to drive home the point that there is no software resident on the customer s computer and that the same highproductivity environment that users have come to expect exists for developers. Sforce is a technology platform that enables the user to custom tailor the application and integrate it into an existing IT environment. With Sforce many aspects of customization can now be performed through configuration, rather than through editing source code. For example, historically, changing most software packages required that a programmer edit the application source code, but with Sforce, S3 users can add fields, change screen layouts, and change the data model, without the need to change a line of code. The result is a cleaner application because there is no extra custom code to be maintained separately and folded into the application during the upgrade process. Sforce technology has also been deployed to software developers to enable them to both build hosted applications that complement salesforce.com and to host those applications. In an effort to reach as large a population of software developers as possible, salesforce.com has made its development environment available at no charge. Salesforce.com also sponsors an online developers community, and there are currently approximately 1,000 developers registered to use the environment. Membership in the community provides developers with a free test environment, sample code, tips and techniques, and a free message board. And as with all other aspects of the hosted service, there is no software to install or manage. Sforce Web Services API Part of Sforce, the Sforce Web Services API enables enterprises to quickly create tightly integrated solutions that allow key customer and sales information to be shared between S3 and other enterprise systems and business processes. In addition, the salesforce.com Integration Server, powered by TIBCO, enables real-time integration between S3 and the most widely deployed legacy software packages on the market including Siebel, SAP, Oracle, and PeopleSoft. Salesforce.com s Integration Server partner, TIBCO, has built a set of adapters that enable users to quickly share key salesforce.com data with third-party applications. Other partners that access the Sforce Web Services API include Business Objects and Sun. BEA will be shipping BEA controls that are already linked to Sforce shortly. Road Map Continuing Innovation Salesforce.com has proven the concept of hosted CRM and continues to build on its early lead in the market. As the hosting approach moves from early adopter status to the mainstream, more competitors will enter the space. Currently, con-
8 Hosted CRM Gains Momentum As salesforce.com Paces the Market 7 ventional CRM suppliers hold greater market share in large enterprise deployments where business processes are more complex and require more ancillary ap- plications, such as rules processing, workflow, and analytics. Analytics may be the most important additional feature set to be incorporated into CRM. Many vendors of both hosted and conventional CRM applications now offer solutions that include analytic tools for retrospective analysis, typically done by managers. But actual line-of-business users can realize great benefits for their companies if analytics are embedded in the applications that they use every day, and embedded analytics is one area where SFDC and its customers can benefit from additional investment. Aberdeen forecasts that salesforce.com will continue to push the envelope by delivering not only analytics but also distinctive innovations, such as workflow, custom objects, and live content, to eventually provide a user experience as customizable as conventional solutions. Beyond these items, the concept of federated applications is taking hold, and SFDC has seen the opportunity to tightly integrate S3 with other enterprise software through Sforce and the Sforce Web Services API. Federated applications cross business and technology boundaries in support of end-to-end business processes, such as order to cash. In such a case data supporting the business process may cross application boundaries from sales to order processing to production systems and then on to accounting and customer service applications. The need for federated applications highlights the importance of products like Sforce and the strategies that they support. Aberdeen Conclusions After several years of slow growth and skepticism from conventional software houses and industry critics, hosted CRM is emerging as a major force likely to shape the future of CRM and the software industry in ways that cannot be fully appreciated today. Hosting has already proven itself as a viable alternative for riskaverse and resource-constrained companies that simply must have the most modern software solutions to effectively compete in their markets. But the appeal of hosted CRM has already spread beyond this core group to companies of all sizes that want the same benefits of fast and reliable deployment, simplified operations, and predictable low costs. The data collected by Aberdeen during 2003 shows a consistent pattern of high user satisfaction and resulting market growth, and today hosted solutions are one of CRM s bright spots.
9 Hosted CRM Gains Momentum as salesforce.com Paces the Market 8 Salesforce.com established an early lead in the hosted CRM market and has not looked back. The company has done more than establish a niche; at every opportunity, it has pushed the envelope to place hosted CRM on a par with conventional solutions forcing other vendors to develop their own hosted solutions in order to compete. There is still more to be done within hosting, and salesforce.com is the likely candidate to continue to raise the bar. Larger deployments with more complex business processes are requiring business rules processing, analytics, and other advanced functionality, and salesforce.com is again in the vanguard of companies delivering these advanced technologies. Competition will heat up in the hosted CRM space as more vendors enter the market, bringing more attention and more interested buyers to the space. As the leader in CRM hosting, salesforce.com will be the company against which these additional competitors compare themselves. To provide us with your feedback on this research, please go to /feedback. Aberdeen Group, Inc. 260 Franklin Street Boston, Massachusetts USA Telephone: Fax: Aberdeen Group, Inc. All rights reserved October 2003 Aberdeen Group is a computer and communications research and consulting organization closely monitoring enterprise-user needs, technological changes, and market developments. Based on a comprehensive analytical framework, Aberdeen provides fresh insights into the future of computing and networking and the implications for users and the industry. Aberdeen Group performs projects for a select group of domestic and international clients requiring strategic and tactical advice and hard answers on how to manage computer and communications technology. This document is the result of research performed by Aberdeen Group, which was underwritten by salesforce.com. Aberdeen Group believes its findings are objective and represent the best analysis available at the time of publication.
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