The Blog

  • July 29, 2009
  • On-premise strength

    I am hearing from vendors that their on-premise CRM sales in the early part of this year are pretty good.  No one has briefed me ahead of their earnings calls but the results from late last year and Q1 seem to be pretty good.

    I should probably wait until the numbers for the last quarter come out from the vendors but I’ve seen enough to call an obvious trend.  Despite the robust growth we see in SaaS software, the market in conventional on-premise CRM software is still very good — at least from the revenue perspective.  It’s not surprising — there are a lot of enterprises that are still wedded to the on-premise model.  On-demand’s growth is great but it comes off a smaller base.  There are multiple factors to consider here.

    First off, there is the issue of net new business and up-sell business such as a customer adding seats or adding modules.  That all counts but once a company elects to go with a particular kind of solution (on-premise or on-demand) it will be much less likely that the company will flip.  Not saying it doesn’t happen, it’s just not highly likely.

    Then, there is the software category to consider.  There is a great deal of demand in the call center for on-premise solutions but I think there is a division developing.  Small call centers might be more receptive to an on-demand solution.  For example, very large call centers — north of about 500 seats — can make a good case for an on-premise approach.  That many seats can be accommodated by a SaaS solution too and I expect that in the future we’ll see many more call centers going on-demand.

    Some of the big factors for on-demand call centers are the cost of real estate and the availability of workers within a geographic area.  I fully expect that as the economy recovers we will again see gas prices north of four bucks, which generally means that the ride to work is going to become more expensive.  Call centers hire people at the lower end of the pay scale and these people will feel the hit more acutely.  So my thought is that on-demand distributed call centers will be on the rise to accommodate the commute.  We could even see a surge in the number of agents working from home.

    But back to the staying power of on-premise CRM software.  Based on the numbers I have seen, the conventional vendors are still bringing in a lot of revenue.  What I am not seeing is apples to apples comparisons.  Too often we compare the revenue from deals for on-premise and on-demand as if they are qual.  After all revenue is revenue, right?  Not so fast.

    The on-demand guys only report current revenue, not what’s coming in year two or three from the deal so their revenue looks smaller than a big licensing deal where all the cash comes in at the beginning.  If you compare the revenue numbers from each kind of vendor you might get the impression that the on-premise guys are light years ahead.  I am not saying that they are not light years ahead, but counting seats would be a truer measure of success when comparing on-premise and on-demand vendors.  Those people responsible to sizing markets would be wise to consider seats as well as revenue.

    If the call center is one of the strong points of premise-based CRM then sales and marketing might be the place where on-demand shines.  Again, there are a lot of organizations that use premise-based SFA but even vendors like Oracle, who offer both flavors, report strong results for their on-demand solutions especially where a customer might decide to run both.  For different reasons sales and marketing seem to be more at home on the Web.

    SFA has become a very mobile application with sales people using their BlackBerries, iPhones and other smart gadgetry to do their work.  Laptops and desktops are still in the mix but it makes the most sense to use an application that spans all the platforms.

    With some minor exceptions sales process and marketing applications seem to be the best of breed standouts.  Suite vendors do not seem to have figured out marketing to the degree that independents like Kadient, Manticore, Eloqua, Market2Lead, Omniture, iCentera, Savo Group and many others have.  The notable exception seems to be Oracle with its gadgets and widgets.

    So as the market sizing season begins and earnings are announced my single plea would be to get all of the reporting bodies to show us the seats.  I know Wall Street wants revenue but my view is that revenue is increasingly becoming a secondary indicator.

    Published: 15 years ago

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