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Salesforce.com is selling an on-demand model that gives customers the ability to roll out a CRM deployment quickly and easily and then scale that deployment either up or down to meet their business needs. So far, small and midsize businesses have taken the best advantage of that, but we are starting to see larger companies that are seriously evaluating an on-demand model.

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Salesforce.com is an ambassador for this space because it reached critical mass first. So when Salesforce.com has a problem, people start questioning the whole delivery model.

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A big benefit to software-as-service is that it lets companies get CRM in place quickly without the kind of budget hassles you see with buying applications. There's a feeling, especially among small and midsize businesses, that a hosted solution will help realize ROI more quickly.

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The small to midsize business segment is a very large part of the hosted market. Software-as-service lets companies get CRM in place quickly without having to raid the I. T. budget to do it.

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Given that smaller business customers represent Microsoft's sweet spot, ... an instant significant force in that market.

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The vendors are selling fewer full suite deals, multimillion dollar soup-to-nuts implementations, and we see that reflected in how they are trying to build services-oriented architectures, so they can deploy modules rather than big-bang implementations. This allows customers to piece together the business functions they need - even modules from different vendors - to meet the specific demands of automatic processing rather than having to buy an entire suite at the outset.

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We knew that the small and midsize business segment would be a large part of this market, but we were a little surprised at how many large enterprises were eager to evaluate the software-as-service option.

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It is very tightly integrated with Outlook and it will shift the landscape in the CRM business.

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It isn't a scalability issue. Typically when you're talking about an organization that will have more than a thousand CRM users, you're talking about a broad implementation that will touch more areas of the company and will involve more business processes.

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Some customers have the expectation that you flip a switch and you're done. But there are setup costs and training costs and ramp-up costs. There's getting the system customized to match the business context and then getting people to use the system. CRM implementations are still complex, even if they're delivered in an on-demand fashion.

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But each company has varying degrees of adherence to Web-services standards and varying methods of supporting those systems.

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The hosted model has reinvigorated a market that has failed to grow over the past several years. The hosted category has changed the whole perception of customer management with faster implementations, quicker time to value and easy customization.

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This is a good time for them to make the biggest impact in CRM software.

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They've been hinting at this for nine months. Given that amount of time, you might have expected a broader offering. This is not even full-blown SFA. It's really just contact management.

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Onyx says they have a poison pill in place, though I haven't seen it yet. It seems like an extreme method, but it could happen.

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For one of their partners to do this, they still have to set up one server for each customer. It's only cost effective for a certain size customer. Microsoft might be thinking beyond CRM, but who knows at this point. They're missing a big opportunity.

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The use of Microsoft's .NET also has Web-services implications within an organization because it provides an effective way to integrate Microsoft applications together.

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The idea behind Software as a Service is ultimately that the buyer shouldn't have to worry about the software or the infrastructure but you need to understand who the hosting partner is. In the long term, that goes away as hiccups get ironed out, but for the time being we're suggesting to customers they understand what's going on behind the scenes. SAP going with IBM was smart because it brings instant credibility.

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Because most of these are monthly investments and in the past were smaller deployments, we haven't heard about the big disasters yet. The larger implementations will be the ones to watch.

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Today, it doesn't match the full breadth of other on-demand CRM offerings, but they're headed in that direction.

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There are several drivers in this market. One surprise has been larger enterprises that want CRM for a branch office or a department. Also, there are so many big players in the market now that it's been creating interest in hosted services.

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We're past the first generation of mobile devices. Many technical hurdles have been eliminated, and that will be reflected in the market.

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