InformationWeek

November 27, 2000

http://www.informationweek.com/814/callcenters.htm

New Choices For Small Business

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

By Charles Waltner

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.

The technologies underpinning these hosted contact centers vary, depending on whether the vendor is more focused on E-mail support, telephone support, or the integration of E-mail and phone support. Many are Web-based, which customers say provides significant advantages in client setup and deployment flexibility.

Some of the technologies also use traditional fat clients on the client company's desktops, connected via a high-speed wide area network to the hosted application server, database server, or other equipment such as phone-routing switches.

With the Web-based systems, such as the E-mail-management application from eGain, contact-center agents only need a Web browser to access the client interface and the back-end application and database. Also, agents can access the app from any computer with an Internet connection, making it possible for companies to have agents work remotely.

Users note, however, that dial-up connections at 56 Kbps or slower, although they may be useable, are certainly not optimal, as the applications can run a little too slowly.

Contact-center ASPs in general are using and refining some of the most advanced contact center technologies. In addition to Web-based client-server architectures, some of the vendors are using voice over IP. For example, Echopass is using voice over IP to completely integrate phone calls and E-mail into one application.

Voice over IP and the universal queue concept have been widely hyped to date, but few if any vendors or companies have been very successful in implementing them. However a couple of the contact-center ASPs have created elegant solutions for universal queues with voice over IP.

Prices vary for the services, and customers of the ASPs typically won't disclose what they pay. EGain, for example, says the base price for its monthly subscription is $6,500, with additional charges based on the number of E-mails managed by the service per month. EGain also charges a onetime implementation fee with a base price of $15,000.

George Zarcilla, director of customer operations Ofoto Inc., an online photo-finishing company in Berkeley, Calif., is using the phone-call-management application service from Ineto for its 10-person customer-service staff.

George Zarcilla Photo by Robert Houser Ineto has gathered CRM software from vendors such as Brio Technology, eGain, Kana, and Siebel Systems, and integrated them to cover a range of customer-service needs, including E-mail management and call-center operations. With the service, a customer-service representative can handle different tasks from a single interface. Underpinning all this is millions of dollars worth of telephone switching equipment, telephony servers, and databases.

As a beta customer for Ineto, Ofoto found that the application suffered from uptime problems early on because of program bugs and other issues. But during the last 90 days, Zarcilla says, uptime has been 97%. Ofoto also maintains an older, basic call-routing device as backup for when the Ineto service goes down.

Zarcilla estimates his company is saving 20% to 30% by going with Ineto rather than building the in-house infrastructure to handle customer calls.

Such savings have helped other companies, too. For example, Enstar LLC in Irving, Texas, uses the market-leading call-center and contact-management programs from Siebel through ASP Corio.

Enstar CFO Art Salinas says the cost savings inherent in the hosted version of the Siebel applications made it possible for his company to afford the robust products. Being able to use Siebel's applications has made a world of difference for his company, Salinas says, providing both call-center agents and sales representatives with detailed information on all customers and their interactions with the company, as well as sophisticated tools for managing and viewing that data.

"We felt we couldn't afford to buy higher-end applications if we went with an in-house version," Salinas says. "The price would have forced us to buy an inferior product to Siebel."

Salinas estimates his company will save at least 35% on the total cost of ownership by going with the Siebel hosted version instead of a lower-tier application run in-house.

Also, companies report these hosted call centers are typically deployed in weeks, and even days, rather than months, helping small entrepreneurial outfits move fast and not become bogged down in IT matters at the cost of focusing on their primary businesses.

Art Salinas Photo by Steve McAllister Larger companies, for the most part, have thus far tended to shy away from host call centers and other outsourced application administration because they worry about controlling such crucial applications. According to Forrester, 71% of companies with 1,000 or more employees cited control concerns as a primary reason for not opting for hosted applications.

But smaller companies say the impressive benefits of hosted call-center apps far outweigh any management issues, especially because these companies realize they don't have the in-house expertise to manage these ap-plications very well anyway.

Also, these companies report few if any availability, uptime, or dependability issues. They note that call-center hosts are experts in running and maintaining these applications, since they manage multiple numbers of theapplications and have learned them inside and out.

Many of the companies offering hosted call centers tend to be small, which typically makes for a good match. Customers report good service from ASPs.

Giga's Herrell says the hosted apps also benefit fast-growing smaller companies. As they grow, they can switch out of one call-center application for a more robust call-center package.

But certainly, companies need to consider the potential drawbacks of hosted call centers, such as integration problems with other applications. That's been the case at CellMania. Robb says that having a product hosted does impose limitations because eGain manages the application. Robb's in-house IT staff isn't developing much knowledge about the product or how it could be integrated with other applications run by the company. "Because we're not living with it, we can't customize it easily," Robb says.

For example, CellMania would like to merge transactions logged by its E-commerce software, BroadVision, into eGain to provide customer-service reps more knowledge about customer interactions with the company. With this experience behind him, Robb says he wouldn't choose a hosted version of an application that required high-level integration with other apps.

Despite this concern, Robb says that going with a hosted version of its E-mail contact center has outweighed any drawbacks.

While CellMania has enjoyed all the common benefits of lower costs and easier management, Robb and the staff at CellMania were particularly struck by how big a difference the hosted eGain service made when it was time to upgrade the application. Robb and his cohorts were bracing for the typical upgrade nightmare of work stoppages, bug fixes, and general IT triage. But this wasn't the case with CellMania's hosted contact-center app.

"We were laughing after our recent upgrade because the process was so peaceful," Robb says. "That's not normally not what you expect." Indeed, hosted call-center apps are pleasantly surprising more than a few companies.