A recent Gartner survey indicated that 42 percent of CRM software licenses purchased have yet to be installed. If you add in recurring maintenance fees to licensing costs, a once promising return on investment scenario takes on a negative spin.
What's wrong with enterprise software deployments? The typical reasoning lays blame in the lap of both the vendors and their customers. The litany of mistakes includes lack of a clear vision, inadequate training, faulty communication, poor teamwork, conflicting agendas, incompetent engineering, low end-user adoption, and unrealistic expectations.
Bottom line, it's a complex, costly journey. Implementing enterprise software has been compared to piloting a 747 aircraft by having a million airplane parts flying in close formation. Given that characterisation, you can easily figure out that more than the deflated economy is causing enterprises to balk at upgrading or deploying new applications. Most mid-sized and small businesses (SMB), for example, haven't deployed CRM software even though they recognise a need for tools to help boost customer satisfaction and profitability.
Many enterprise software companies are now trying to retool existing code or acquire products to address the complexity issue and the needs of smaller businesses. In the CRM space, Siebel, PeopleSoft, and Pivotal among others have products that span large and smaller enterprise. In May, SAP is expected to release a set of back-office applications for smaller business that it acquired from Israeli company Top Manage Financial Solutions.
Retooling large-scale applications -- a top-down approach-is one way to expand the reach of enterprise software to serve smaller businesses. But shrinking a large-scale enterprise application to meet smaller business needs could be like trying to turn a mainframe into a PC. The underlying design and engineering decisions that went into the initial system are inherited by the smaller system. As a result, undesirable mutations may appear, such as high integration costs, onerous installation procedures, excessive maintenance requirements, and cryptic user interfaces.
Companies that take a bottom-up approach can avoid dealing with unintended mutations and legacy issues within the applications, but typically deliver a limited set of functionality. That limitation helps reduce cost and complexity, but may not offer the flexibility that some companies need in designing solutions. Over time, practitioners of the bottom-up approach will add in more functionality, but at a risk of creating the complexity that they have tried to avoid.
One of the more instructive examples of the bottom-up approach is Salesforce.com. The four-year-old company offers hosted Web-based CRM applications at a monthly fee of US$65 to US$125 per user. According to CEO Marc Benioff, the company currently has 6,000 customers with 80,000 subscribers from customers including deployments in some larger enterprises including General Electric, Avis, and Honeywell. The company, which started with a basic sales force automation solution and now offers an enterprise CRM suite, did US$52 million in revenue last year and claims it will double the number this year.
Salesforce.com is a good indication of where software is headed: software as a service. When you sign up with a power utility, for instance, you don't need to bring the power plant in house or to deal with maintaining the quality of service. Instead of laying down a giant upfront payment and signing up for a long-term service contract, you simply pay a monthly fee for what you use and let the vendor take care of hosting, upgrades and maintenance.
While many corporations are squeamish about ceding control of information to vendor-hosted solutions, IBM, Sun, HP and others are making a big push into utility and on-demand computing, which includes externally hosted solutions.
In the US$3 billion CRM market, the upstarts (smaller vendors such as Salesforce.com, UpShot, Salesnet, and NetLedger) that offer hosted CRM solutions are a drop in the bucket today-perhaps 3 percent of the total revenue -- but growing at a decent pace.
Microsoft plans to deliver a version of its recently introduced CRM software as a hosted service. Oracle offers a set of hosted applications, including financials, procurement, and inventory management for a monthly fee and a one-time setup cost.
Over the next several years most companies developing and purchasing software will focus more on the software as a service model. It doesn't necessarily eliminate the complexity problem, but goes a long way toward mitigating risks and costs through outsourcing (at a fair price) and flexibility licensing requirements. Building software that is less complex to use and integrate, however, will take more of a bottom-up approach that starts with a solid base using open standards that scales from small to large enterprises.
My guess is that it will take another five years for software as a service to gain significant traction. The biggest dependency for this software transformation will be the performance of the software service providers. If quality of service fails to meet expectations, all bets are off.
What's your take on software as a service? What do you see as potential upsides and downsides? Share your opinions with other readers in our TalkBack forum below or e-mail edit@zdnet.com.au.
