CRM and ASP - welcome to TLA heaven

Customer relationship management (CRM) is a great opportunity for application service providers (ASPs) but not an easy one to exploit. Ovum's David Bradshaw looks at how CRM has moved to the web and asks how well it is suited to the next stage of web service delivery - the ASP model.

Although some CRM software vendors have been successful (and the most handsomely rewarded has been the market giant, Siebel), many are struggling.

The real beneficiaries have been the systems integrators, from heavyweights such as Accenture to niche integration players. CRM software has list prices of around $5,000 per user (although deals can be negotiated), but systems integration costs will typically be five times this, and potentially considerably more.

In its early stages, CRM software vendors focused on integrating the three principal domains of activity - sales, service and marketing. Initially, all these systems had separate software that had difficulty 'talking' to each other - and separate systems do not constitute CRM.

Vendors also focused on providing these capabilities for two principal channels - face-to-face and via call centres. For face-to-face channels, this meant developing a 'detached' client that would run on a laptop and that could be synchronised over a dial-up line; for example, from a hotel room. This is no mean feat given the likely size of customer databases.

The next stage was to improve the integration of external systems, especially integration of CRM and ERP (enterprise resource planning), so that customer information was unified. But both ERP and CRM systems like to 'own' the customer data model, which made integration difficult.

However, that is not all. Organisations with very large numbers of direct customer relationships typically have multiple customer-facing departments, and each department has often independently selected its own CRM system. This leads to banks, telecoms operators and (to a lesser extent) utilities owning one of everything. Integrating all these to back-end systems, and keeping any new changes in sync, is a continual nightmare for internal IT departments.

At first, the trend towards web-based business wrong-footed the CRM vendors. Their business models were strongly based on people-to-people contact, whether through the call centre or sales or service 'road warriors'. Most still struggled to support the historical self-service medium of interactive voice response (IVR).

However, the CRM vendors quickly realised the web is a valuable customer interaction channel and one they need to address. They scrambled to come up with initiatives, ranging from building their own web capabilities to partnerships with leading web commerce players. Some even wrote books about web commerce (Tom Siebel and Pat House of Siebel wrote the respected work, Cyber Rules). Then, before you noticed, CRM magically became eCRM.

Many vendors have already rewritten their clients into formats that can run in a browser window, and the rest are following. Siebel was among the last major vendors to do this, last month. Archrival Oracle, though late to launch a CRM offering, went straight to a browser-based client. Also, it will not have escaped your attention that a browser-based client is rather convenient for ASPs that want to offer CRM services.

Though CRM has undeniably been a fad and stories of its benefits are all too often over-hyped, it remains a corporate imperative. Companies that merely do a competent job of CRM will win out over those that do not do it at all. We do not need fancy market research to know that the general standard of customer service is bad - every one of us suffers appalling customer service at some point in both our private and professional lives.

There are several reasons why CRM suits e-services (especially the ASP model). Most products have, or are acquiring, a web-based front end, making them easy to offer as a service. Managing CRM systems is a particular challenge for end-user companies as the systems have grown big and absorb a great deal of support staff time and resource. CRM systems are expensive, especially when integration costs are counted.

For medium-sized companies, the expense of buying and integrating their own systems may be well out of reach, and using a service is a potential alternative. Services that already offer ERP should strongly consider also offering CRM because there is a strong fit between the two. Systems require large amounts of customisation and integration - in other words, they provide opportunities to increase the margin of the service. If ASPs can develop their own skills in this domain (or have a good relationship with a professional services partner), this could be lucrative - remember that the systems integrators charge five times the software cost for doing this.

Siebel has become the dominant player in this market. It is therefore possible to cover a large share of the market by offering services based on a single vendor's product set.

However, there are some obstacles facing CRM, at least when it comes from e-services players: the volume of customisation and integration will make CRM an impossible challenge for many ASPs without very strong professional services capabilities.

Smaller customers may be prepared to accept a 'vanilla' CRM offering for a while - but not over the long term. Although increasing verticalisation of the products will make it easier for ASPs to offer services that fit their clients' needs, the verticalisation is often superficial and therefore reduces the customisation required only slightly. Expect the verticalisations to get better, but not any time soon.

Data protection issues will be of high importance because CRM necessarily works with some of the most precious data a client company owns. Until ASP vendors collectively develop a strong reputation for integrity, this may be an insurmountable problem.

There is a requirement for a roving client that can be carried around on a sales or service representative's laptop and which can be used when a connection is unavailable. This is not a good fit for the ASP business model. Roll on the days when high-speed wireless internet is everywhere - but don't hold your breath!