On-demand CRM: From Top-lines to Bottom-lines (Strategic Focus)
Datamonitor
October 24, 2008 10 Pages - SKU: DFMN1933591
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Introduction
The on-demand CRM model is expected to witness solid growth rates over the medium term. However, many on-demand vendors are witnessing unique competitive pressures and are yet to find profitability. Datamonitor feels that a confluence of traditional go-to-market strategies and distinct technological initiatives could help vendors expand their reach and achieve sustainable profitability.
Scope- Provides an overview of the growth path and the most important trends affecting the on-demand CRM market
- Delivers a comprehensive assessment of the performance of on-demand CRM vendors and evaluates the financial impact of the model
- Presents Datamonitor's detailed view on the value of partnerships and application exchange communities
- Recommends specific go-to-market strategies for each vendor category
Highlights
The on-demand CRM model has is gaining rapid adoption and is expected to witness double digit growth rates. However, achieving profitability still remains a challenge with most vendors. Vendors are spending unusually large portions of their revenue in marketing efforts and not utilizing their assets and datacenters optimally.
As on-demand CRM providers start offering comprehensive solution suites, integration and interoperability will the key differentiating factors. Vendors that will be able to deliver industry-centric customization, SOA-oriented approaches to integration, and platform-as-a-service will also add value.
Datamonitor analyzes the changing dynamics of the market and expects go-to-market strategies to evolve beyond web delivery of services. To deliver successfully, vendors will need to form extensive partnerships that expand the sales organization, increase industry-centric customization, and foster integration efforts.
Reasons to Purchase- Gain in-depth knowledge on the dynamics of the on-demand CRM market
- Gain insight into the performance of leading on-demand CRM vendors and understand their pain-points
- Understand the effects of the on-demand model on the financial position of end-users and vendors
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- Overview
- Catalyst
- Summary
- Key Messages
- The adoption of the on-demand CRM model is accelerating
- Profits are still not materializing due to the intrinsic inefficiencies of fast-growth markets
- Competitive pressures are unique in each enterprise size-band
- CRM end-users need to be better educated on the benefits of the model
- Integration and customization are turning out to be the key technological differentiators
- Partnerships and industry-centric customization efforts are shaping go-to-market strategies
- Table of Contents
- Table of figures
- Table of tables
- Market Opportunity
- CRM is an established business methodology and a mature enterprise application
- Multiple licensing and delivery alternatives claim to be the panacea to legacy CRM's woes
- The on-demand CRM model will offer accelerated growth, especially over the mid-term
- Ignoring the on-demand CRM model is no longer an option
- Revenue growth rates of on-demand providers exceed the industry average
- Some on-demand vendors expand the market, while others eat into the share of on-premise vendors
- Profit margins are not clear yet and breaking even could take more time for on-demand providers
- Selling and marketing costs are high for on-demand providers
- On-demand providers' asset turnovers are currently lower than those of pure on-premise vendors
- Maintaining and improving asset utilization will be crucial
- Revenue growth will need to be balanced with increased asset utilization
- Vendors managing a hybrid portfolio may have to deal with cannibalization
- Profiting from high-growth opportunities will require focus on operational excellence
- Technology Evolution
- Social computing is helping CRM to become customer friendly
- The evolution of on-demand offerings will increase integration complexities
- The integration complexities of on-demand solutions are increasing as end-users rely on them more
- Green-field users are skeptical of on-demand solutions and have limited integration needs
- Intermediate level users test on-demand solutions with intentions of scaling up
- Progressive users typically deploy multiple on-demand solutions or comprehensive suites
- Mature level users have complete reliance on on-demand solutions
- Multiple approaches to integration address different pain-points, but complicate pricing
- Platform-as-a-service offerings gathering momentum
- Development and application exchange communities are also fueling the growth of on-demand CRM
- Platforms and collaboration communities will help to produce diverse solutions
- Integration and customization will be key, but paths to achieve them may differ
- Customer Impact
- The on-demand model needs to be marketed better to the CFO's office
- On-demand subscription fees impact the financial statements differently than on-premise license fees
- Capitalization adds assets and results in amortization expense
- Expensing treats subscription fees as period expense
- On-demand fees which are expensed move front-end capital expenditures to operational expenditures
- The on-demand model may be more relevant in times of tight liquidity
- The on-demand model may reduce business continuity risk for end-users
- Security concerns still evoke emotional responses and will take time to be dispelled
- Remote access to CRM could improve the effectiveness of a sales force
- Vendors need to communicate financial, social, and security benefits of the model better
- Competitive Landscape
- The multiple categories of vendors have led to a disjointed market structure
- Multiple levels of competition exist in the on-demand CRM market
- Vendors catering to the mid-segment will experience the greatest competition
- The on-demand model will be stress tested in large enterprises
- Finding profitability in the smaller segment could be challenging given price sensitivities
- Freemium and open-source on-demand CRM could democratize the lower end of the market
- Open source on-demand CRM is catching up
- Freemium is attractive to the price-sensitive customer
- Competition at each user size-band will vary, as will competitive strategies
- Go to Market
- Develop partnerships to expand reach, improve vertical offerings and push integration
- The need for verticalization will shape go-to-market strategies
- Verticalization can be delivered through a confluence of company initiatives and partner efforts
- Vendors should be cautious of over promoting their solutions and losing customer trust
- Segment customers and deliver unique messages at each segment to avoid marketing clutter
- Recommendations
- Tailor go-to-market approaches based on end-user size and expected profitability
- Mid-market will continue to be the sweet spot
- Large enterprise sales will require a strong reseller base along with mature offerings
- Targeting smaller businesses could be difficult
- APPENDIX
- Definitions
- Methodology
- Further reading
- Ask the analyst
- Datamonitor consulting
- Disclaimer
- List of Tables
- Table 1: Basic feature matrix - on-premise CRM versus on-demand CRM models
- Table 2: Level of end-user maturity decides dependence on the on-demand model
- List of Figures
- Figure 1: Major on-demand vendors report substantially higher growth rates than on-premise vendors
- Figure 2: Major on-demand vendors report substantially higher growth rates than on-premise vendors
- Figure 3: Gross profit margins do not yet follow clear patterns
- Figure 4: The majority of on-demand vendors are yet to break even
- Figure 5: NetSuite's net profit margin has not been positive to date
- Figure 6: Sales and marketing expenses are higher for on-demand vendors
- Figure 7: On-demand vendors report lower asset turnover ratios than pure on-premise peers
- Figure 8: On-demand vendors report high revenue growth rates but lower asset utilization
- Figure 9: Effects of the on-premise model on the financial statements of end-users
- Figure 10: Effects of the on-demand model on the financial statements of end-users
- Figure 11: The pure-play on-demand model faces competition from other models
- Figure 12: The high growth in the mid-segment will usher in competition
- Figure 13: Growth opportunities and vertical penetration will decide verticalization strategy
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