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| Profits Could Prove Elusive for the On-Demand CRM Model The on-demand customer relationship management (CRM) model is gaining rapid adoption and according to independent market analyst firm Datamonitor, will witness double digit growth rates over the medium term. However, according to its new report, "On-demand CRM: From Top-lines to Bottom-lines", many on-demand vendors - leading ones included, are facing unique competitive pressures and struggling to find profitability in this high-growth market. Datamonitor urges vendors to look beyond revenue growth rates and start doing morewith less — by stabilizing operational expenses and increasing the utilization of their assets and data-centers. The report points out the potential for the growth of on-demand CRM solutions and its expanding footprint into the sweet spots of other CRM delivery models which will intensify competition. "The double digit growth rates in the on-demand CRM market are grabbing headlines and attracting the attention of potential acquirers and investors alike", says Surya Mukherjee, senior analyst with Datamonitor's technology team and the report's author. "However, investors and acquirers will start getting disillusioned with growth if there is no payoff. The need of the hour for on-demand CRM vendors is to accelerate their path to profitability by driving operational efficiency." The on-demand CRM model will offer solid growth opportunities over the medium term, but profitability could be elusive Datamonitor defines on-demand CRM as comprising of applications that typically reside with the vendors and allow multiple end-users to access the same instance of the application (multi-tenancy) remotely through the Web. This architecture helps the vendor to deliver support, fix software bugs, and update the software for all end-users at the same time, while reducing its own costs by eliminating effort duplication. Users of on-demand CRM applications do not typically make upfront investments in software or hardware, access their CRM application via a web-based interface, and pay only subscription fees on a regular (typically monthly, semi-annually or annually) basis per user. This model is becoming one of the most successful alternative delivery models in CRM and is gaining fast adoption across enterprises of all sizes. The global on-demand CRM market, estimated by Datamonitor at about $1.7 billion in 2008 in subscription revenue alone, is expected to reach $3.8 billion by year end 2013, growing at a compound annual growth rate of 17.7% during this period. Vendors currently offering on-demand solutions should effectively capitalize on this high-growth period to expand their customer base. Retaining the high customer acquisition rates that on-demand vendors have achieved so far will be important, as customer churn could drive sales and marketing (S&M) costs skyward and kill such subscription-based businesses. "Achieving profitability will be challenging, especially in the wake of increased competition from more entrenched delivery models", says Mukherjee. "The on-demand model is relatively new and depends heavily on S&M expenses to promote itself. If S&M continues to be higher than the industry average, vendors will need to look at managing general and administrative costs better. Off-shoring of product development could be a possible option to that end. Given that most on-demand vendors plan to expand data-centers in the near term, asset utilization will also be a critical parameter to watch." Although easy web delivery will remain the cornerstone of market outreach strategies, partnerships and verticalization will matter Although all go-to-market strategies for on-demand models will continue to revolve around the same tenets — easy delivery over the web, minimal hassle due to zero footprint solutions, and a simplified subscription fees payment structure — innovating on go-to-market strategies, will reap dividends. On-demand CRM vendors will find value in tying up with different categories of partners — solution partners, industry partners, developer partners and implementation partners — to expand their sales organization, increase verticalization, and foster integration efforts. Verticalization and customization will be the new battlefields of on-demand vendors, and go-to-market strategies will also need to change accordingly. Datamonitor feels that a combination of the positives from financial benefits, collaborative user interfaces, enhanced remote access, and reduced security concerns will make a compelling argument for the on-demand model. "The on-demand CRM model has the potential to provide a sustainable alternative for customers dissatisfied with the on-premise model. Vendors should be active and need to in communicate a holistic message to end-users, comprising of the financial, social and security benefits of the model. Over the longer term, vendors would also benefit from nurturing the relationships thus developed with the finance organization to cross-sell complementary offerings, such as customer analytics and business intelligence." Mukherjee concludes: "The emergence of alternative delivery and licensing models in the customer relationship management (CRM) market has expanded the range of choices for end-users. A confluence of traditional go-to-market strategies and distinct technological initiatives could help vendors to expand their reach and achieve sustainable profitability." write your comments about the article :: © 2008 Computing News :: home page |