Gartner Blog Network

The CIO’s Cloud Mania for CRM: And they swam and they swam right over the dam.

by Michael Maoz  |  August 12, 2013  |  2 Comments

Let’s face it: the five year cost of CRM software in a SaaS model has eclipsed on premise software costs for most organizations. We should re-state this: most businesses will not face this issue head on. Obfuscating and a disengenuous sleight-of-hand accounting razzamatazz can give the vague appearance that SaaS is cheaper. SaaS  is evolving like Client/Server in the Cloud: next-gen vendor lock-in. Our Open API, our partners, our certification, through our system. Other than that you have complete choice.

The prices have risen as functionality has been added. The argument that it would get cheaper because of economies of scale for the vendor has not translated into lower costs. There still is nothing available to run a global customer support organization for a consumer-oriented enterprise. Most of the vendors in the space can’t make a profit. Software suppliers who have entered the space have not grown significantly, and everyone has to point to the same one or two players, though they are the exception proving the rule. Lack of global data centers to deliver the application servers and store sensitive customer data, as well as integrate with local telephone switches and CTI protocols has also slowed adoption.

And yet SaaS continues to attract CRM application buyers, and for good reason: the desire to outsource infrastructure and IT expertise and lower fixed costs continues unabated. The gutting of internal IT expertise appears irreversible. The only impediment to adoption is lack of product, and lack of competition where there is product.

The cost to a vendor to build out a global capability is steep, and the handful of software companies who have the wherewithal have not seen the CRM space as sufficiently promising to go wide and go deep. That leaves essentially a largely non-competitive market for global scale CRM in a SaaS model.

The result means that unit prices have and will continue to go up for buyers/subscribers. The advice would be to keep a watch on vendor lock-in, and weigh the trade offs between ‘most-of-suite’ versus best-of-breed. It is going to be a long four years until a more competitive global market evolves for SaaS in the Sales and Customer Service CRM space, and keeping options open is not a bad idea as the dust settles.

Or do you see it differently? We see what we see – and there may be hard evidence versus a few anecdotal and incomplete estimates of the above – so jump in and respond!

Category: analytics-for-social-crm  applications  cio  cloud  contact-center  crm  innovation-and-customer-experience  it-governance  leadership  saas-and-cloud-computing  sales-force-automation  sfa  social-crm  social-networking  social-software  strategic-planning  vendor-contracts  

Michael Maoz
VP Distinguished Analyst
13 years at Gartner
26 years IT industry

Michael Maoz is a research vice president and distinguished analyst in Gartner Research. His research focuses on CRM and customer-centric Web strategies. Mr. Maoz is the research leader for both the customer service and support strategies area and customer-centric Web… Read Full Bio

Thoughts on The CIO’s Cloud Mania for CRM: And they swam and they swam right over the dam.

  1. Brad Hodson says:

    I think you’re very right on the vast majority of the industry. Costs have been rising for SaaS models, as they try to penny pinch users into oblivion. Features keep getting added which helps some, but charges more to others who don’t need them and keeps the vicious cycle going.

    Even further, Enterprise customers are the hardest to sell to for SaaS solutions because the revenue stream will almost never keep up with the cost of doing business. Large CRM companies that go mostly after Enterprise are thus stuck ever shelling out more money to get more monthly fees that can never keep up with their cost, especially when they have accounts cancel on them.

    It’s a tough business, but I believe there is a right way to do it. Providing the right tool to the right audience at a low cost, while keeping expenses on the low as well, is a sure fire way for success in a cloud-deployed world.

  2. I agree with the post and with Brad – the prices will keep going up, so we should keep a watch on vendor lock-in.

Comments are closed

Comments or opinions expressed on this blog are those of the individual contributors only, and do not necessarily represent the views of Gartner, Inc. or its management. Readers may copy and redistribute blog postings on other blogs, or otherwise for private, non-commercial or journalistic purposes, with attribution to Gartner. This content may not be used for any other purposes in any other formats or media. The content on this blog is provided on an "as-is" basis. Gartner shall not be liable for any damages whatsoever arising out of the content or use of this blog.