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 Chuck Schaeffer The SaaS CRM Market Is Evolving Vertically

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 By Chuck Schaeffer

The majority of software as a service (SaaS) CRM vendors have yet to deliver market specific business solutions for routinely recognized market segments. Several on-demand CRM solutions still view the market place as a giant green field selling opportunity and promote a single, horizontal product across industries and customer segments.

This lack of market segmentation is not to be unexpected when a market is in its infancy. When the earliest mainframe and host-based software applications became ready for customer acquisition, the primary customer targeting was not based on company size, geography or industry, but instead on who could afford the cost of procurement. With the release of client/server business applications in the early 90’s, the vendors’ targeting was across the board from start-ups forecasting big growth or small clients desiring to upgrade from LAN-based business software to the largest of companies seeking to replace rigid and monolithic mainframe applications.

With both of these prior era platform evolutions, the technology initially took precedence because at the outset few vendors delivered business software which empowered customers to take advantage of the technology. However, as more software manufacturers delivered the new technology, all vendors had to demonstrate value beyond just the technology to remain competitive. In both prior eras, as the markets matured the vendors recognized that information system goals, requirements and constraints paralleled along a continuum which could be segmented by company size, vertical market and geographic location. To remain competitive, software vendors had to both leverage the new technology and meet the specific business objectives of more precise customer markets. Ultimately, the host-based and client/server business application providers honed their solutions for specific industries, market segments and/or geographies.

SaaS CRM applications are now beginning the migration phase once traveled by their mainframe and client/server predecessors. Early SaaS pioneers boasted the SaaS value proposition and not particular benefits of their SaaS applications. Think ‘No Software’ – a successful brand which speaks to the demise of on-premise software, however, does little to promote the vendor’s CRM application among other SaaS CRM applications which also deliver the benefits of the SaaS model. SaaS products are no longer the renegade new thing acquired by just early adopters. They are becoming the norm and acquired by the early majority. In a June 2010 Gartner report, the software analyst firm indicates that in 2009 SaaS CRM accounted for 20% of enterprise applications.

While some of the largest client/server software manufacturers continue to drag their feet in an ill-advised effort to protect their on-premise cash cow revenue streams or at best spin weak SaaS solutions as a defensive tactic, many start-up and more forward thinking companies have released credible SaaS solutions that replace the client/server stalwarts and bring increased competition to the on-demand market place. Hosted ERP provider NetSuite and competitor Intacct have created deep vertical solutions for the professional services industry which automate front to back office time collection and billing business processes. SaaS CRM leader Salesforce.com has created a financial services version of its software and other competing hosted CRM systems from Oracle and RightNow are going after the life sciences and government industries respectively.

With new credible competition, SaaS software publishers will be forced to abandon their generic all-things-to-all-people product approach and instead refine their products to meet specific industry and customer market segmentation needs. There are salient business and systems differences among small business, middle market and enterprise customer organizations - and there are deep business process and functional differences for many vertical markets. SaaS vendors who continue to push the same CRM application to a 5 user company, 500 user company and 5000+ user organization will become marginalized by the more relevant SaaS vendors who better serve the business and information systems needs for each customer market. If the market share leaders fail to verticalize their solutions, the market will attract other industry specific systems which lye beyond the purview of the early leaders and find safe harbor with customers who demand a higher fit with their industry requirements. Just as the client/server era solutions ultimately refined their applications to more closely align with customer needs and became recognized for the industry or customer segment which they best support, so too will SaaS solutions. End

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Comments (6) — Comments for this page are closed —

Guest Rachelle Zeta
  We seek a government specific CRM system, however, after reviewing the CRM vendors that claim to have a government CRM solution, it appears that their government product isn't really different than their other product.
  Chuck Chuck Schaeffer
    You may be right. In a rush to claim competitive advantage and increase sales, several SaaS CRM providers claimed industry specific products that were really not much more than additional configuration for a particular market. In reality, the product was unchanged and they spent more time creating vertical brochures and collaterals than adapting their software for a given industry. However, marketing verticalization is giving way to real verticalization. Several SaaS vendors are taking the time to modify and advance their products to meet select industries requirements. Assuming as a government agency you have CRM requirements such as Section 508, NIST C&A and/or FIPS 199 compliance, I would suggest you take a look at RightNow which is a leader in the federal government CRM market, as well as Salesforce.com and Oracle OnDemand which are both challenging RightNow and coming on strong. Microsoft Dynamics CRM 2011 may also be a candidate if you include a third party partner product.

Guest Tim DeGrandis
  I suspect your prediction around industry specific saas crm products may be correct, however, I think you've missed the threat and the wrath which will be applied by both the old guard software companies and the early market share saas leaders against the newer innovators. Unfortunately, the old guards desire for self preservation, their paranoia and their willingness to stop at nothing to prevent smaller companies from threatening their market share will have a weakening effect on the new solutions you speak of.
  Chuck Chuck Schaeffer
    Particularly in the software technology industry, established companies have long sought to quash smaller competitors that threaten their business models or market share. Within the software as a service industry, we recently watched Sage, a billion dollar accounting software company, go after KashFlow, a SaaS startup trying to get off the ground. When Kashflow created a web page comparison chart, showing their product in the typical side by side subjective columnar review, Sage threatened litigation and took their case to the local Trading Standards office, saying in part that the comparison "is likely to cause a detriment to Sage (UK) Limited by inducing potential customers to purchase alternative software solutions on the basis of erroneous and misleading information." If the comparison review is deceptive, Sage certainly has a valid point. It nonetheless seems odd that a billion dollar ERP software company would invest its executive resources in going after a start up with no measurable market share for producing a 6 point high level comparison table. While the Sage example is merely an illustration, and I agree with you that larger companies will attempt to slow new competitors, innovators are often a persistent bunch with a tenacity that cannot be denied.

Guest Janice Silverstein
  What system would you recommend for a cloud company that has complex billing requirements?
  Chuck Chuck Schaeffer
    Assuming that as a cloud computing company you want a cloud solution that offers varying billing types for various services, including one-time billing, subscription billing, utility billing, meter-based billing and/or overage billing, I would recommend taking a look at Aria Systems, Monexa, Recurly, Transverse and Zuora. Aria's product integrates with Salesforce.com. Zuora's product was developed with Force.com and offers a packaged integration with both Salesforce.com and NetSuite. Monexa's product was originally created for the ISP and telecom market and has been around for over a decade.

If by chance you don't require the varying billing types previously referenced, but do incur compliance and business process requirements such as VSOE (vendor specific objective evidence), time & billing, deferred revenue recognition, renewal management and support for the several accounting pronouncements (SOP 97-2, 98-9, 81-1 and EITF 00-21, 08-01, 09-03) encumbered on this industry, I suggest you also take a look at Intacct.

 

 

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SaaS products are no longer the renegade new thing acquired by just early adopters. They are becoming the norm and acquired by the early majority. In a June 2010 Gartner report, the software analyst firm indicates that in 2009 SaaS CRM accounted for 20% of enterprise applications."

 

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