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Next week at its CRM Summit, Gartner (NYSE: IT) will release statistics suggesting that in certain implementations, the Software as a Service model is not as cost-effective -- or even effective -- as earlier projections and experiences have led some companies to believe.
Among the new strategic planning assumptions developed by Gartner:
- Through 2010, the on-demand model will lower the total cost of ownership for moderately complex CRM deployments by 10 percent to 13 percent over three years and by 4 percent to 6 percent over five years compared to on-premise systems.
- Through 2010, 75 percent of complex CRM SaaS deployments will fail to meet enterprise expectations.
The key words in these assumptions are "moderately complex" in the former and "complex" in the latter, said Gartner Vice President Robert DeSisto, who will be making a presentation on this issue at the summit.
Victim of Its Own Success
What has happened is that larger companies have been impressed with the performance, price points and ease of implementation of SaaS applications, DeSisto told CRM Buyer. Many have rolled out deployments in one division or among one employee group to great success 
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"What we are seeing now is that these larger companies are getting into the game with more complexity," DeSisto said. "They are trying to use SaaS to support more-complex CRM processes and, quite frankly, the providers are not there yet to meet those requirements."
That is why he projects that 75 percent of complex CRM SaaS deployments will fail -- and why he is predicting a TCO that is vastly lower than earlier projections.
"These applications are being stretched into an area that is not their sweet spot," DeSisto remarked.
Real-Time Integration
One example of a project likely to fail would be the real-time integration of an SaaS application into an enterprise back-end, he said. "Cross-departmental processes or real-time integration with a back-end system is the choke point for these projects."
The only vendor that has attempted to provide this functionality is NetSuite, he said, "and it is not large enough for the largest companies to use."
Power to the Buyer
That said, the SaaS model is well suited to the business case for which it was originally developed, DeSisto maintained. He projects that from 2006 through 2010, SaaS will rise from 12 percent of spending in the CRM application market to 30 percent.
"There is no question that on-demand puts much more power in the hands of the business user now," he said.
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