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CRM market heats up with rent, buy options

As the market for customer relationship management software starts to sizzle, the option to rent or buy the software is now an option for midsized companies.

Kim Girard
Kim Girard has written about business and technology for more than a decade, as an editor at CNET News.com, senior writer at Business 2.0 magazine and online writer at Red Herring. As a freelancer, she's written for publications including Fast Company, CIO and Berkeley's Haas School of Business. She also assisted Business Week's Peter Burrows with his 2003 book Backfire, which covered the travails of controversial Hewlett-Packard CEO Carly Fiorina. An avid cook, she's blogged about the joy of cheap wine and thinks about food most days in ways some find obsessive.
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Kim Girard
3 min read
As the market for customer relationship management software starts to sizzle, options for companies renting or buying the applications are blooming.

Within the next week, applications service provider (ASP) Corio is expected to announce a partnership with a customer relationship management software firm, the company said. Under a deal, Corio will host the front office applications for customers, charging a monthly fee to manage the service.

The Redwood City, California-based company is talking to main market players Vantive, Clarify, Onyx, and Remedy, according to Jim Zemlin, Corio's director of marketing, but no decision has been inked.

To be sure, Corio isn't negotiating with No. 1 front office software maker Siebel Systems. Corio rival USinternetworking is already renting Siebel's applications, which automate sales, services, and marketing functions for a company.

Meanwhile, services giant EDS is renting German software giant SAP's software from its data centers, targeting middle market customers. Oracle has established Business OnLine, a sure bet for renting its front office applications to customers soon.

"I think [the market's] hot, not just heating up," said Judy Hodges, an industry analyst at research firm International Data Corporation (IDC), and renting the software will be just one part of the growing market.

IDC expects the CRM market to reach about $11 billion in 2003 from $1.9 billion in 1998. Each segment of that market--which includes sales force automation, marketing, and call centers--is projected to grow more than 40 percent over the next five years. Spending on services offered by ASPs, such as Corio and EDS, is expected to reach $150.4 million worldwide this year, IDC predicts, though the firm has not broken down what percentage of that spending will be on CRM application hosting.

ASPs such as Corio argue that midsized companies can avoid management headaches and save 70 percent in up-front costs by renting all software applications instead of buying them.

"Our customers are hurting because they can't execute well," said Corio founder and CEO Jonathan Lee, who is targeting pre-IPO firms that lack the resources and IT staff to manage complex applications.

While Corio pursues the smaller firms, larger old-time companies like Oracle have vowed to topple Siebel's lead in the CRM software market within a year.

Oracle's goal is ambitious but a little too optimistic, according to some analysts.

"Oracle and Siebel seem to have it out for each other, which is not what the market needs," said Tom Gormley, an analyst with Cambridge, Massachusetts-based firm Forrester Research. "They [Oracle] do seem to make forward progress, but they have a long way to go, every vendor does. No vendor can do it all."

It's not easy for a newcomer to become a market leader, added Steve Bonadio, analyst at Hurwitz Group. "It could happen for Oracle within two years," he said. "It's a possibility, but not in a year."

Meanwhile, analysts don't expect SAP to get a foothold soon in the CRM market--for sales or software rental--noting that the firm, plagued by development glitches, has missed deadlines to deliver its front office products.

Gormley said while die-hard SAP customers will probably wait for SAP's offerings, he believes many companies will ultimately pick another vendor.

"Right now, I think the market is so under-served that all of these players can make money, including some of the smaller companies like Vantive and Clarify," Hurwitz's Bonadio said. "Right now, this is a good market to be in."