Trend

SaaS: CRM’s next frontier

Globally the subscription based model (SaaS) is widely accepted when it comes to CRM. In India it is slowly gaining momentum. Mohd Shariff PA says that the high cost in acquiring and maintaining the traditional licensing model is paving the way for SaaS.

Forrester throws some interesting statistics on why SaaS (Software as a Service) is fast emerging as an important model in EAS (Enterprise Application Software—ERP, CRM, SCM, and BI) including CRM. R Ray Wang, Principal Analyst, Enterprise Application/Tech Industry Strategy, Forrester Research Inc says, “One principal reason why businesses are looking at the SaaS model is because (EAS) software maintenance and support continues to be the biggest spend area contributing to 30 percent of the total cost of the acquisition of an EAS application. Additionally, this cost becomes a recurring cost for most businesses, which is a significant amount. It is a driving force for businesses to look at the SaaS model.”

The traditionally EAS deployment model involved large upfront license costs followed by huge recurring annual costs in the form of software upgrades and maintenance costs among others. The traditional deployment model for EAS also put pressure on additional costs such as new software (OS) and hardware (servers) and their annual maintenance and upgrades. In the SaaS CRM model, the software solution (CRM) is hosted and supported by a vendor as a service, which is accessed by users via the Internet, without the need to deploy and maintain an on-premise IT infrastructure. Some vendors associate SaaS with pay-as-you-go or subscription pricing, SaaS is more indicative of the hosted deployment model.

In fact, SaaS can be priced via subscription, annually or perpetually. SaaS has generated growing industry attention and customer acceptance because it offers a simpler method to adopt and administer essential business software applications such as CRM. It also makes it easier for end-users to access and use these applications via the Internet. SaaS does not require additional IT infrastructure investments in new servers and databases to store data, or private networks to permit user access. Instead, companies can leverage the SaaS provider’s hosting facilities and take advantage of Web-based access.

The SaaS model also substantially increases application reliability because vendors perform frequent backups and utilise redundant hosting facilities to reduce the risk of downtime. By comparison, on-premise software deployments do not offer this safety net. These SaaS attributes let companies focus their limited in-house IT resources on more strategic corporate initiatives rather than reacting to daily application availability, maintenance and support issues.

SaaS is fast emerging as the next big opportunity for EAS vendors and as an important deployment option in customer relationship management (CRM) and will soon extend in ERP as well. SAP, Oracle, Talisma, and CRM 24X7 and many more are offering SaaS-based model for CRM deployment. SaaS as a software solution is hosted and supported by a vendor as a service, which is accessed by users via the Internet, without the need to deploy and maintain an on-premise IT infrastructure.

Bharat Ahulwalia, Vice President- Engineering, Aditi Technologies, believes “Software as a Service (SaaS) has the potential to transform the way data is being accessed by various departments and their role as providers of computing services to the rest of the enterprise. The emergence of SaaS as an effective software-delivery mechanism creates an opportunity for IT departments to change their focus from deploying and supporting applications to managing the services that those applications provide.” Aditi Technologies is using Salesforce.com’s SaaS CRM system.

Atul Sareen, Vice President-Platform, SAP India says, “Today, companies need CRM for different reasons. Companies today not only compete within their industry, but for the attention of prospective customers. Apart from the right message, they are challenged to find the right channel to reach customers. Businesses also need to quickly adapt to market changes and deliver innovative products and services that meet customer demands to retain existing customers and achieve larger share of wallet through a customer-oriented mode of operations.”

Business drivers

There are some key issues that businesses are facing in CRM deployment which have lead to a rise in SaaS adoption. Ray says, “Businesses are challenged with rapid deployment of CRM capabilities in the traditional fashion. Set-up times and configurations almost always end-up with a significant degree of customisations leading to an increase in the cost of deployment. SaaS eliminates the deployment challenges and through extensive meta-data configuration, it provides sufficient capabilities to address changing business process requirements.”

Looking at the challenges in implementing CRM, Ray points out three business drivers for the SaaS model. Ray says, “One, SaaS allows a business user to select a solution without significant dependencies from IT staff. In companies where IT no longer has the capacity or the bandwidth, this option becomes quite favourable to a Vice President or General Manager of a division. Two, SaaS’s cost structure at cost/user/month, enables business users to use operational expenses instead of having to go through the capital expenditure budgeting processes. Lastly, upgrades, infrastructure and maintenance are included in the price.” He adds, “The growth is occurring because customers are suffering from upgrade fatigue and are seeking newer deployment options for future functionality.”

Faster deployment

Jeremy Cooper, Vice President, Marketing Asia Pacific, Salesforce.com says, “Time-to-Benefit is an important factor. On average, salesforce.com’s small-to-medium sized customers are up and running in approximately 15 days and larger customers in 45 plus days because there is no hardware or software to implement and install. Implementations are focused more on operational issues (data migration and change management) as opposed to the traditional back-breaking work on installing systems. You just need an Internet connection to access the infrastructure.”

Lower TCO

Based on a subscription model, SaaS applications have significantly reduced upfront costs and total cost of ownership. Organisations are allowed to fund their software requirements from operating expenses (from revenue streams) as opposed to large capital budgets that could be directed to other areas of the business or may simply not be available.

Another key benefit of SaaS is that it eliminates the IT infrastructure required to support new on-premise applications. It also significantly reduces the cost of application maintenance and eliminates the issue of IT infrastructure becoming obsolete over time. Bharat says, “SaaS has significantly improved the quality and consistency of our workforce management programs while eliminating the burden on our internal IT staff to develop and maintain these applications. It has cut our customer support systems operating cost considerably.” The company achieved these cost-savings by eliminating software and server maintenance fees, private data line charges and other related infrastructure expenses.

Girish Krishnamurthy, Managing Director, Asia Pacific, Talisma says, “Businesses that are looking at SaaS for deploying CRM prefer it for various reasons such as the ability to get started quickly. They see results in weeks, rather than having to wait for months for the same. Smaller upfront fees and the ‘Pay on the go’ or ‘Pay as you use’ model are attractive. SaaS can be treated as an expense rather than Capital Expenditure and most maintenance and system upgrades don’t have to be done by the customer, so IT costs are lower.” Here planning, budget allocation and approval are completely eliminated. The implementation cost is low and so is the time to go live. If the application meets business requirements, then it is available for use from day one.

Mohammed Ali, president & CEO, CRM 24x7 adds, “With SaaS, the business users are empowered to select the application they like and deploy it across the enterprise. The number of users can be increased within minutes, there are no scripts and patches to run, neither is there worry about server configurations and throughputs. In terms of maintenance there is absolutely no maintenance involved (no start-up or shutdown, no tension of back-up, recovery, performance tuning).”

Access to the latest technology

Another thrust of this model would be access to the latest technology. SaaS is leading the way with new Web-based integration standards. Also, customers enjoy automatic and effortless upgrades. For example, salesforce.com introduces three to four major releases each year and all the customers immediately utilise the latest version. When they launched Spring ‘07 in March, their 646,000 subscribers globally had immediate access because there is no software to download or install. For SMEs, the utility nature of SaaS also means they are utilising innovative software that they would otherwise not be able to afford on their own. This is especially true for areas such as security.

Samik Roy, Regional Director, CRM, South Asia, Oracle Corporation believes that cost is the major driving factor. He says, “About 33 percent of our customers say that this is the prime reason for them to look at CRM through a SAAS model. There are no upfront investments in licenses, hardware, implementation but only periodic subscription fees that are a fraction of the license cost. As a result, users save a significant amount on the capital expenditures involved in deploying an application by buying its license and other equipment to support the solution.” This is generally more attractive to SMBs who work on smaller IT budgets. The cost factor is particularly appealing in the Indian context as the region is one of the price sensitive markets.

Boosting revenues

By publishing software as a service through the Internet, a software company, regardless of size develops a global reach. Not only is the sheer size of the potential user-base larger geographically but the spectrum of users becomes broader, thanks to the fact that SaaS is provided on a subscription basis meaning low monthly fees and no large up-front payments. Now a vendor’s products are opened up to small companies who can afford a few hundred dollars a month instead of coming up with thousands of dollars at once.

Extending the model to ERP

Ray is optimistic that SaaS model will be incorporated into ERP deployments as well. He says, “Our survey data shows ERP and HR leading for SaaS in terms of the projects deployed in the past year. In HR key areas such as talent acquisition, talent management, and incentive comp are driving this growth.”

SaaS now touches every software segment. Recently Salesforce.com has launched the AppExchange, the online directory for publishing and distributing business applications. There are Indian developers such as CRM Orbit and TCS on the AppExchange. According to CRM 24x7 there are solutions that already exist for ERP.

Samik of Oracle claims, “There are some customers who are looking at deploying their ERP and other areas on the SaaS model. Such areas include collaboration, Web conferencing and office automation. But research as well as our market analysis clearly indicates that CRM has taken the lead in the SaaS approach.”

SAP will soon unveil a next-generation solution and an additional business model that will reshape the way midsize companies purchase, adopt and finance software applications. Sareen says, “The new solution will leverage a new Enterprise Service-Oriented Architecture (Enterprise SOA) by design platform and will be available to customers through on-demand and hosted delivery for significantly lower total cost of ownership. The solution code named “A1S” will be launched in India sometime in 2008. This solution will offer ERP on demand to our customers.”

Oracle’s CRM on Demand provides inbuilt and extensive Business Intelligence components along with it. What it provides is out of the box, industry-specific dashboards and functional drill down reports.

Though the security has been the major challenge for SaaS model, vendors are placing a maniacal amount of importance on security and we could cite world-class standards by the vendors.

The best evidence of faith of growing pool of customers of different companies shows that this issue is being addressed very specifically. Particularly salesforce.com has 1,200 financial services customers worldwide. We cannot understate the importance this industry places on data privacy security. SaaS model will continue to cash on the companies of all verticals. It is more appropriate to say that this ecosystem improves, the SaaS model will move into a higher gear.