On-demand CRM: From Top-lines to Bottom-lines (Strategic Focus)

Published by: Datamonitor

Published: Oct. 24, 2008 - 10 Pages

Table of Contents

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

Abstract

• 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

• 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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