Corio Inc., a leading ASP, will reveal this week that it has formed a relationship with Siebel Systems Inc. to host Siebel's full suite of CRM applications and has landed its first customer for the offering. Corio has integrated the Siebel apps with PeopleSoft's ERP suite, providing companies with a complete hosted service. Last week, Breakaway Solutions Inc. launched its CRM offering, hosting Clarify's eFrontOffice applications. A new ASP, eOnline Inc., began offeringSAP back-office apps and says itplans to host SAP's CRM applications by year's end. And Digital Market Inc. unveiled a new software-rental program for its Digital Buyer 5.0 Internet supply-chain and customer-relationship software product. Major ASPs USinternetworking Inc. and Oracle Business Online, meanwhile, landed new customers for their hosted CRM services.

Hosted CRM applications are catching on at small and midsize companies, where some sales and marketing departments complain that their existing customer-management applications are inadequate. In some cases, hosted apps may be cheaper than implementing a packaged CRM application internally.Add the lure of fully integrated front- and back-office applications implemented and hosted by a single vendor, and it's a model that's hard to ignore.

A recent Dataquest report indicates that hosted services will emerge as the dominant delivery model for CRM applications among emerging and midsize companies by 2001. Global revenue from CRM software licensing will grow from $1 billion in 1997 to $4 billion by 2002, making CRM a lucrative opportunity for application service providers. The ASP approach is still largely viewed as a way to provide small and midsize businesses with enterprise apps; analysts contend that ASPs will have to demonstrate competence among emerging enterprises before they get the business of larger companies.

Trusting an outside firm with precious customer data, including new sales leads, customers' buying patterns, and contract information, is a concern for many businesses, large and small. As ASPs land more deals and educate businesses about security and bandwidth issues, they'll have an easier time selling integrated ERP and CRM offerings, says Asha May, an analyst at Dataquest. "Customers want other types of solutions from their ASPs beyond ERP," May says. "They don't want to go to several different companies to receive a complete offering."

Customer Skepticism
Some users remain skeptical. Vern Snider, executive VP of corporate development at REZsolutions Inc., a Phoenix provider of reservation services to the hospitality industry, says he would never outsource his company's CRM applications. "A lot of our business is built on the relationships we have with our customers," says Snider. "I couldn't risk losing information about hotels we deal with to another company or to a system failure."

Snider says he's less concerned about back-office data. REZsolutions uses eOnline to host its SAP financial and human-resource applications. By doing so, Snider says, the company saves as much as $20,000 a month--taking into account the technical staff it would have needed if the ERP apps were deployed in-house. "By outsourcing back-office functions, we can concentrate on our core competency," Snider says.

Foodservice.com, which provides services to the food-service industry, uses Breakaway Solutions to host its Oracle financial and human-resources applications and would consider adding the ASP's new Clarify CRM offering. But there's a caveat: The New York company would require a dedicated server, says CEO Karen Wertheim. While Foodservice.com's Oracle apps are hosted on a shared server, customer-oriented apps are a different story, she says. "With CRM, I'd have to spring for my own server because the data is too sensitive."

Other companies aren't as sensitive about having an ASP host their CRM applications. Spectral Response Inc., a manufacturing company in Atlanta, uses a hosted Internet application from Digital Market to receive contracts, orders, and information about supplies and specifications from customers and to send data to its suppliers. The company is so confident in the ASP approach that by year's end, it will finalize plans to outsource other supply-chain management tools, accounting applications, and possibly other sales apps to Digital Market. "We've gotten beyond the fear that an application or the data therein is too critical to outsource," says Kevin Melendy, VP at Spectral Response. "Instead, we're looking at what makes good business sense."

Intraware Inc. also quickly got over any initial trepidation about using hosted front-office apps. USinternetworking has just completed implementation of Siebel front-office apps for the Orinda, Calif., Internet software and services vendor. "I didn't have any concerns about hosting, but our IT department was worried about who would have ownership and control of our customer data," says Norm Pensky, VP of sales at Intraware. But after reviewing USinternetworking's service, which provides Intraware with a dedicated leased line, its own servers, and guaranteed 99.5% availability, the company's IT department felt comfortable with the arrangement. As added security, Intraware has the option of bringing the applications in-house after its two-year contract expires.

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Photo by Mark Escher