The End of the Big Bang

By Sean Gallagher  |  Posted 2003-06-01 Print this article Print

Tracking customers now is commonplace. How you pay for the service needn't be.

No matter what a vendor claims, it's hard to neatly prove customer relationship management (CRM) software generates a return on cost.

PDF Download Even so, the reality is that keeping readily accessible records of interactions with customers has become part of corporate infrastructure. CRM is now an information utility akin to phone service and Internet access. So why isn't it priced like a utility—incrementally, and based on usage?

Discouraged from undertaking "big bang" deployments of just about any enterprise software, some companies are holding down costs of their customer management systems by starting with basics and adding features incrementally—or by choosing to use a hosting service to test the waters first.

"People are fed up in general with overblown projects," says Rod Johnson, vice president of customer management research at AMR Research.

That attitude may lead to a sea change in this market. The bottom lines of Siebel, SAP, PeopleSoft and Oracle are based on landing deals every quarter with big up-front licensing payments from customers. Those licenses generally come along with a large ongoing requirement for professional services to get them up and running.

But there are companies that will succeed because of customers' newfound pecuniary caution. These are companies that have either already adopted utility pricing models—like hosting service Salesforce.com—or have found other ways to reduce the ongoing cost of owning software, such as reducing installation and maintenance requirements.

Take the case of Valleylab, for instance. In late 2001, the $230 million medical equipment unit of Tyco Healthcare looked at a number of customer management programs to support 100 field salespeople, each with a territory of about 300 hospitals, clinics and doctors' offices. With few internal resources to dedicate to the project, its success depended on "limiting its scope and picking our battles," says project leader Dan Ewing. "We focused on the food, water and sex of sales-force automation, the primal needs."

Valleylab passed over Siebel because it was "overkill and overpriced." Instead, the company selected iAvenue from Saratoga Systems, a small, privately held player that had fallen into obscurity because it adopted Internet technology slowly. The strongest advantage of iAvenue: All of the work required to deploy it could be accomplished by Valleylab's own staff. Additionally, it allowed salespeople to synchronize data on their laptops for offline access—a specific demand of the Valleylab sales force.

The rollout of iAvenue in November 2001 cost Valleylab $750,000—including the cost of new laptops and handheld computers for each salesperson, the iAvenue software licenses, and $50,000 for Saratoga Systems to train Valleylab's sales force to use the software.

Since the deployment, the only additional costs have been application support and a maintenance agreement, and salaries of two people who maintain the software within Valleylab.

Saratoga Systems, which claims 800 customers worldwide, isn't much of a threat to Siebel, SAP or PeopleSoft. But Salesforce.com's hosted model may well be, particularly when cast as Sforce, the Web service the company announced June 3.

Corporate software developers will be able to create software that uses the information stored in Salesforce.com's hosted system, using tools from BEA, Microsoft, Sun and Borland. This makes Salesforce.com's service potentially more flexible—and more attractive to larger corporate customers.

Regardless, Saratoga and Salesforce.com are both demonstrating the demand, even among larger customers, for simpler products and pricing structures. If the major enterprise software suppliers fail to match them, they may not be major much longer.

Sean Gallagher is editor of Ziff Davis Internet's enterprise verticals group. Previously, Gallagher was technology editor for Baseline, before joining Ziff Davis, he was editorial director of Fawcette Technical Publications' enterprise developer publications group, and the Labs managing editor of CMP's InformationWeek. A former naval officer and former systems integrator, Gallagher lives and works in Baltimore, Maryland.

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