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November 27, 2000

New Choices For Small Business

Hosted contact apps offer easy administration and other features at a lower cost

By Charles Waltner

Illustration by Aaron Thomas Roth

More on call centers:

Call Centers: Here, There, And Everywhere (10/23/00)

Internet Week: CALL CENTER INTEGRATION (10/23/00)

Computer Reseller News: The next step for CALL CENTERS (9/25/00)

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magine a group of business-grade applications that deploy easily, in only a matter of weeks or days, and provide some of the most advanced features on the market, require little administrative effort by your IT department, and cost 25% to 50% less than other apps, making them affordable for nearly any company.

Haven't heard such promises since your last software vendor presentation? A growing number of small companies looking for contact-center management software say they've found all these features in hosted contact-center applications.

Smaller companies that have used hosted contact-center applications instead of standard licensed software (which is run and managed in-house) report a plethora of benefits and few, if any, drawbacks--and they almost universally voice high praise.

Charisse Luckey, VP of operations at PlanetFeedback.com Inc., concurs. PlanetFeedback, a Cincinnati Web site that provides a forum for consumer feedback to companies as well as providing market research and data to businesses, signed on with Synchrony Communications, also in Cincinnati, and doesn't regret the move.

The hosted Synchrony electronic customer-relationship management application provides a universal queue that presents phone, E-mail, and Web communications in one contact log and management application. The application is Web-based and can be used by anyone working on a PC with a browser.

PlanetFeedback, a 50-person company, sought software for its contact center without much information about the hosted options, but has been pleasantly surprised with the advantages of using a hosted call-center application.

"We weren't strictly looking for an application service provider, but once I understood the ASP model, it was clearly the best for us," Luckey says, adding that her favorite features of the Synchrony app are its universal queue and knowledge base, which stores information on common customer questions. Her company uses the knowledge base to automate responses to common E-mails. Contact-center agents can also use the knowledge base to help them answer questions.

Luckey says rolling out the application took only two weeks and required just 1-1/2 days of training. She wouldn't reveal pricing for the Synchrony application but says PlanetFeedback expects to save more than 50% by going with the hosted application rather than running a comparable application in-house.

"Being a new company, our IT staff are fully loaded down with developing the Web site, so it's hard to get the IT staff's attention. But that isn't a problem with Synchrony," Luckey says.

Hosted call-center apps are finding an enthusiastic audience in smaller companies, in sharp contrast to large businesses. According to a report from Forrester Research, "Sizing App Hosting," last year, almost 60% of the small to midsize businesses (defined as companies with fewer than 1,000 employees) expressed an interest in outsourcing some type of application within the next three years.

CRM applications, including all contact-center applications, are the second largest segment of hosting sales, led only by E-commerce applications. By 2003, Forrester predicts hosted CRM applications will account for almost $2.5 billion in revenue. The 1999 application hosting market totaled $933 million in revenue.

Conversely, less than 10% of the largest companies expressed an interest in hosted applications. Interest from smaller companies will drive the application hosting market as application rental licenses will grow to $5.8 billion by 2003, totaling nearly 25% of all application purchases.

The need to conserve internal IT support resources is the most influential factor in a company's choice to outsource applications such as call centers, Forrester says.

Small businesses, which lack extensive in-house IT support, note this as the main reason they seek outside vendors to host applications. Larger companies, on the other hand, eschew hosted applications, because they have already made investments in personnel and support systems for running application servers.

"The more we considered ASPs, the more we realized we'd rather direct our resources to our core products," says John Robb, director of product management for CellMania Inc., a Mountain View, Calif., company that sells E-commerce software and services for running cell phone stores. His company is running eGain Communications Corp.'s hosted contact-center application, which frees his IT personnel to develop Web sites.

John Robb Photo by Richard Morgenstein Hosted call-center applications require lower deployment costs, which can be crucial for cash-strapped startup businesses. The hosted services eliminate the expense of buying servers and software licenses and hiring employees to set up and maintain in-house apps.

Smaller companies also note outsourced contact-center applications take the heat off them to find and retain scarce IT professionals, who now command increasingly high salaries.

Despite the ongoing costs of a hosted application service, a majority of smaller companies are finding this option is cheaper in the long run, primarilybecause of the reduction of in-house IT staffing administration expenses. Companies using these ser-vices even report positive returns on their hosted contact-center investments within a year.

"Companies should find these services paying for themselves relatively quickly," says Elizabeth Herrell, a senior industry analyst at Giga Information Group. "They make a huge amount of sense for midmarket and smaller companies."

Bob Chatham, an analyst with Forrester Research, says the market has no shortage of companies offering hosted contact-center services. "There's at least 20 companies in the market," he says. "To date, that's all I've been able to keep in my sights."

Chatham says that despite the large number of companies, the market for contact-center hosting is still nascent, but he expressed "guarded optimism" regarding the development of the hosted contact-center market.

Certainly for vendors, the hosting of contact centers is proving its viability. EGain, one of the leading vendors of licensed software for in-house E-mail contact centers, hosts software for 45% of its customers, about 250 companies. Of those companies choosing hosting, 85% to 90% are small businesses.

Chatham notes that some of the companies in the market have garnered strong interest from investors. Ineto Inc., for example, raised about $37 million, and eConvergent Inc. raised $72 million from investors this year.

Herrell says the new hosted contact centers can be beneficial to smaller companies but notes that many of the applications are oriented toward handling E-mail and Web communications rather than phone calls, with only a few companies offering robust phone-call-management support. "But I think they're working quickly on rounding out their offerings," she says.

Vendors of hosted call-center applications fall into a couple of categories. Some of the vendors are software manufacturers who sell licensed versions of their applications to companies for in-house installation, as well as offering a hosted service. These companies include Synchrony, eGain, Kana Communications, Echopass, eConvergent, Ineto, and Nuasis.

Companies can also turn to ASPs that don't create their own software, but rather host a variety of applications from partner vendors. One such vendor providing multiple call-center applications is Corio Inc.

Each hosted call-center application varies in its phone and E-mail integration, with some vendors specializing in either E-mail or phone contact management, and only a few, such as Synchrony and Echopass, providing a universal queue to integrate both E-mail and telephone contacts. Some applications have been written from the ground up for the hosting model, while others are licensed software that's dropped into hosted-service environments.