The CRM guide to Cloud Computing

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The term Cloud Computing is becoming more familiar but what is it exactly and why is it so important to CRM? Stuart Lauchlan offers his guide and explains how CIOs are approaching doing business in the Cloud.

It isn't very often that Larry Ellison admits to not understanding something. So there has been much delight about the Oracle CEO's pronouncements on the subject of Cloud Computing. "I have no idea what anyone is talking about," he declared when asked about The Cloud. "It's really just complete gibberish. What is it?"

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Now there's a degree of suspected marketing hubris here – Ellison has been talking about and advocating what we now call Cloud Computing for well over a decade. He just didn't call it Cloud Computing and many suspect he doesn't like having to use someone else's marketing labels! 

But you know what? Larry has a point! What is Cloud Computing? The answer at present is that it is the latest must-have label from the ever fickle fashion house that is the IT industry. There's nothing new in this of course. IT vendors as a whole have never been able to see a bandwagon trundling past them without hurling themselves on board, regardless of whether they had a legitimate ticket to ride. In fact, when they don't have a ticket-to-ride, the hurling on board tends to be all the more emphatic and dramatic!

More than a label

The result is that Cloud Computing is a hugely, shall we say flexible label that is being pinned to all sorts of technologies - some new, some not so new, but scrubbed up nicely to be on trend with the wider market. “If you look at it in terms of the Gartner Hype Cycle at work, Cloud Computing is approaching the apex of the cycle,” says Geoffrey Moore, the hugely respected management guru and author of Crossing The Chasm.

Moore cites the example of the new class of applications that are inherently Cloud-based from birth. “These are the ones that you ask why you would put them in a data centre where they would be like a pig on a bicycle,” he says. “There are the web-based consumer facing applications that we all know and now there are some prescient vendors like Salesforce.com and NetSuite in the business space. The problem becomes when you see Oracle and SAP re-engineering for SaaS.”

Ah, yes, SaaS. If we're talking about Cloud Computing and the CRM market, then really we're talking about software as a service, or SaaS.

Or at least we were until a couple of years ago when Salesforce.com's user conference Dreamforce suddenly rebranded as CloudForce and everyone else fell in line. You can see why Ellison's more than a tad miffed at this point, can't you? This is what he's supposed to do, not Marc Benioff!

Nonetheless, the rest of the SaaS CRM market is now seemingly happy enough to be labelled both SaaS and Cloud. NetSuite, RightNow et al all answer to both labels and regard them as essentially interchangeable. It's probably quite a handy thing to have; two terms to describe the same thing. For many CIOs, Cloud still carries connotations of Twitter and Facebook and 'stuff my teenage kid does', whereas SaaS has more of a business track record.

But times are changing. “For CIOs, SaaS or Cloud as a big picture passed a tipping point into acceptance about six months ago,” reckons RightNow's chief marketing officer Jason Mittelstaedt. “CIOs have gone from resistance to acceptance. They want to participate. They know that the business will leverage SaaS and they want to be relevant. They want to be part of the conversation. CIOs are taking part."

It's a theme echoed by Benioff. "CIOs, more than ever before, understand what [Cloud Computing] means and are going for that,” he says. “We offer an alternative to traditional IT architectures. We are more than a decade into the SaaS revolution. The nature of the technology adoption curve means that it is happening incrementally. You just need to look at our revenue growth to realise how far we've all come.”

Fast growth in the CRM market

Certainly Cloud-y CRM is a fast growing business. Worldwide CRM market revenue totalled $9.15bn in 2008, a 12.5% increase from 2007 revenue of $8.13bn, according to Gartner. SaaS represented nearly 20% of that total CRM revenue in 2008, up from just over 15% in 2007. Gartner projects that the SaaS industry will achieve consistent growth through 2013 when worldwide SaaS revenue will reach $16bn for all enterprise applications.

“Despite financial market volatility, the worldwide CRM market enjoyed its fifth consecutive year of double-digit growth as businesses continued to invest in solutions across all sub-segments,” notes Sharon Mertz, research director at Gartner. “Actual market growth was moderated by a stronger dollar but reflects higher contributions from emerging markets.

“Many factors are driving SaaS adoption, including the benefits of rapid deployment and rapid ROI, less up front capital investment, and a decreased reliance on limited implementation resources. Greater market competition and increased focus by the mega vendors is reinforcing the legitimacy of on-demand solutions. Many enterprises are further encouraged by the fact that with SaaS, responsibility for continuous operation, backups, updates and infrastructure maintenance shifts risk and resource requirements from internal IT to vendors or service providers.”

But what is Cloud Computing?

But we still have issues of definition. While the SaaS and Cloud terms might be used relatively interchangeably, there are those more unscrupulous vendors – perish the thought! - who will stick the Cloud label onto something that most emphatically is not Cloudy. Less maliciously, there are also those who offer something that's similar to SaaS without actually being full-blown SaaS, muddying the waters nicely in the process.

If you want pure, unadulterated SaaS, then a vendor's offering should have a number of key characteristics. According to Gartner, a SaaS offering will involve the delivery of multi-tenant service from a remote location over an internet protocol (IP) network via a subscription-based outsourcing contract. “It is important to differentiate SaaS from hosting or application management or application outsourcing,” said Chris Pang, principal analyst at Gartner.

Nonetheless, there is a regularly repeated argument that we have been here before as an industry. Isn't this just a dusted down version of 'applications service provision' from the 1990s? Or even time sharing from the early days of business computing? “The first big lesson is that The Cloud is an old idea revisited,” says Zach Nelson, CEO of NetSuite. “The whole idea behind The Cloud was what AT&T thought of back in the 1950s – wouldn't it be great to pick up the phone and talk to someone anywhere. Now it's about being able to access business services in The Cloud.

“SaaS and The Cloud are the future of software,” he adds. “The Cloud platform discussion has been getting a bit focused on one area. There will be many Cloud platforms out there - there will be Cloud platforms that are single company and Cloud platforms that are multi-company. SaaS continues to reshape the software industry in very violent ways if you're one of the firms that hasn't made the change.”

Where does CRM fit in?

Overall, CRM is the most popular SaaS application, ahead of enterprise resource planning (ERP), content communications and collaboration (CCC) and supply chain management (SCM). This is partly attributable to the high profile of firms such as Salesforce.com. “While there are many more vendors offering SaaS for applications other than CRM, their media exposure has generally been less conspicuous,” says Pring.

But Gartner points out that CRM SaaS applications tend to cover a wider range of functions in common processes, such as sales automation, marketing automation and customer service support. In contrast, SaaS applications such as ERP, CCC and SCM will focus on specific areas of business process support such as expense management, talent management, recruitment, web conferencing and procurement.

There will of course be those firms who remain resistant to Cloud-based CRM. Such firms will prefer to deploy their CRM solution in-house, behind the firewall. Some will cite security concerns, simply unwilling to trust their data to The Cloud; some will simply prefer to own their IT rather than pay for computing power on a 'per drink' basis; and some will just have luddite CIOs who jealously want to preserve their data centre fiefdoms.

The hybrid model

A category that is emerging rapidly is the hybrid model, a halfway house that sees firms not going completely down the Cloud route but bolting SaaS applications and modules on alongside existing installed on-premises systems. An alternative approach is to run your applications in someone else's data centre, but not on a multi-tenant architecture, akin to basic outsourcing.

The hybrid model is the one most eagerly supported by SAP and Microsoft, with the latter talking about 'software plus services' rather than the usual definition. In contrast, the likes of Salesforce.com, NetSuite and RightNow talk of pure, unadulterated SaaS, but make efforts to ensure that their integration capabilities are there to support the hybrid approach to deployment. It's a case of buyer beware as far as CIOs are concerned: choose the model that best meets your needs.

As for Oracle, well there are signs of a thaw there. Ellison has begun talking up the on-demand versions of his company's offerings far more aggressively, while Salesforce.com has joined Microsoft and SAP in his pantheon of companies on the regular receiving end of a barbed comment or three. As for whether this means he's coming round to Cloud Computing, his answer is simple: “A little bit.”

The great CRM debate

Chaired by MyCustomer.com's Staurt Lauchlan, representatives from Salesforce.com, IBM, Microsoft, RightNowTechnologies, NetSuite, Oracle, CapGemini and SAP discuss the future of Cloud Computing at the 2009 Technology for Marketing and Advertising event.

For more information on Cloud Computing visit BusinessCloud9.com

About Stuart Lauchlan

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22nd Jul 2011 15:35

I think that Customer Relationship Management is definitely a viable tool used to build better loyalty among their customers.  It is able to  clearly identify opportunities that will have a great ROI. It is great to see CRM cloud computing solutions being used within companies.  I think that there is now a huge demand for CRM cloud hosting solutions. I really think that CRM cloud computing will be a constant in the future for both enterprise and small businesses.

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