At your service


19 Apr 2005

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After decades of being spurned by the major software companies, small businesses are now being actively courted by the technology giants. As recently as the late Nineties, the so-called ‘shrink-wrapped’ model was the only way to acquire enterprise-class software.

This involved going to one of the big players to purchase an expensive licence that gave you the right to run the software and then put in place the necessary infrastructure such as hardware, application servers, databases, firewalls and so on, to get it up and running. With many SMEs operating without any dedicated IT staff, is it any wonder that most passed on acquiring such software even if the complexity of their business dictated that they had a need for it.

With the enterprise market having little appetite for large projects post-Y2K, the software companies realised that they would have to look outside the traditional base if they were going to maintain their growth rates. Pushing down into the SME space with products that either have reduced functionality or are limited by the licensing conditions seemed like the obvious move. The results have been mixed but in the meantime another model has emerged – software as a service – that is proving very attractive to smaller companies.

It’s part of a wider move in the industry towards on-demand computing and adaptive infrastructure – concepts that have been developed to give big businesses more flexibility in the way they purchase technology. But savvy SMEs are also realising that the model of paying a monthly fee for access to software hosted by a service provider, also called application service providers (ASP), means they can now get access to enterprise class for a fraction of the ‘shrink-wrapped’ costs. And a new breed of software companies, particularly in the area of customer relationship management (CRM), have emerged to fulfil that need.

“The needs of SME companies are no different from those of large ones,” says Fergus Gloster, director of Salesforce.com’s EMEA operations (pictured). “They shouldn’t compromise because they are small but they have been forced to in the past because they couldn’t afford enterprise-class solutions.”

Founded in 1999, Salesforce.com has pioneered this model of delivering CRM this way, and is now the number one in this space with more than 227,000 people around the globe accessing its software over the web. Not surprisingly other CRM vendors have added ASP as an option.

“It’s all about freedom of choice,” says Andrew Boyd, general manager of Sage Technologies, which provides CRM on either an ASP or shrink-wrapped basis. “You need to have a solution that’s right for the customer. I don’t believe that a stripped down enterprise version is right for small businesses. They are dealing with the same complexity as large enterprises. The notion of giving them less doesn’t hold water with me and I don’t think it holds water with our customers.”

At first glance it may seem that cutting costs is the main attraction of software as a service – after all you are getting to use a piece of software that might cost hundreds of thousands of euro, and you are probably only paying a couple of hundred euro a month for the privilege. In reality, the reasons individual businesses find it attractive are much more varied and complex. Companies with a number of branch offices can provide staff in all locations with access to the same software without having to replicate IT infrastructure at each location. Others are attracted by the fact that the upfront costs are low – once you have internet access and browsers on all your PCs, you simply give your credit card details to the ASP and away you go.

“The one thing that comes up time and time again with customers is predictability,” says Boyd. “It’s not necessarily that the service is low cost but that it’s predictable.”

According to Gloster, the attraction of their model is that there is shared risk between Salesforce.com and the customer. “With traditional software you paid up front for the software but once you installed it the vendors headed for the hills,” says Gloster. “With software as a service we only get paid as we deliver. That offers a comfort zone to people who are entering this for the first time.”

Accessing CRM software as a service can also involve a shift in mindset as the valuable customer data you are gathering is stored off-site on someone else’s servers – something critics of the ASP model have always talked up.

“It’s a legitimate concern,” says Gloster. “The question is can the person minding your data mind it better that you can? As a service provider we can build an infrastructure that an SME could never hope to build. It’s the same as a bank being a better place to store your money than a shoebox.”