CSO Insights Study Favors On-Demand CRM

I’ve never met Jim Dickie at CSO Insights (www.csoinsights.com) but have always been impressed by the thorough, objective (and concise!) nature of his reports on sales methods and technologies. The most recent, “On-Demand Versus On-Premise CRM: Are There Performance Differences?” lives up to expectations. Amid the contradictory and self-interested vendor claims of success for their products, CSC Insights’ surveys of over 2,500 companies found a clear winner: on-demand systems (a.k.a, hosted, application service provider, or Software as a Service) deploy faster, are more likely to stay within budget, have more satisfied users, and yield more significant improvements than conventional on-premise systems. Nor are the differences minor: almost under twice as many on-demand users reported significant improvements in results as on-premise users: 39.8% vs. 20.8%. Margins on other measures are similar.

(The paper is available here from the CSO Insights Web site, although be forewarned that registration is required and I received a follow-up inquiry from Salesforce.com. I don’t recall being asked whether I wanted one. This is not exactly a best practice.)

The report doesn’t discuss whether the on-premise systems (Siebel, Oracle, PeopleSoft, SAP and Microsoft) were deployed in more complex situations or larger companies than the on-demand products (Salesforce.com, Siebel OnDemand and NetSuite). This may help explain the results. But even if this is the case, the results suggest that simpler, less integrated on-demand solutions are adequate for the needs of many smaller, less-demanding firms. This raises the question of whether the many on-premise software vendors who hope to expand into the small to mid-size business (SMB) market will be able to succeed without radically reengineering and simplifying their products. Personally, I doubt it.

On the other hand, this also raises concerns about on-demand vendors, notably Salesforce.com, who are trying to increase the amount of customization and integration they support. Handled properly, this may be possible without compromising results for users who are satisfied with basic implementations. But it could easily result in the sort of “feature bloat” that has long affected conventional software vendors in relatively mature, competitive markets, making the systems less effective for everyone. The good news is that only some of the on-demand vendors will pursue this strategy, so there should always be simpler, cheaper alternatives for companies who don’t need anything more.