Hosted CRM Is Hot

In the early 2000s, the line between on‑premises and cloud‑based customer relationship management blurred rapidly. Companies that once invested heavily in expensive, custom installations began to see the promise of a subscription model that delivered the same power, but with lower upfront costs and faster deployment. Within this shifting terrain, Siebel Systems made a decisive move that would position it directly against the rising star Salesforce.com. By bundling its long‑standing enterprise strengths with a new, fully hosted solution, Siebel hoped to win over the mid‑market and eventually the entire CRM ecosystem.

Siebel's OnDemand Strategy and Market Position

Siebel launched OnDemand in 2003, announcing a hosted CRM that would cost $70 per seat per month. The figure was deliberately modest, aiming to lure mid‑size businesses that needed robust analytics and tight integration with legacy Siebel software but could not justify a large, on‑premises spend. The platform promised the same full‑suite features as the traditional Siebel product, including advanced data mining, workflow customization, and a set of built‑in connectors that allowed seamless communication with the company’s flagship enterprise solutions.

Less than a year after OnDemand’s debut, Siebel acquired UpShot, a boutique hosted CRM provider with an existing customer base of small and midsized firms. The acquisition was more than a mere expansion of customer numbers; it was a strategic effort to absorb UpShot’s proprietary hosting infrastructure and user‑experience design. Siebel announced that all legacy UpShot customers would receive continued support in a dedicated branch of the OnDemand platform. This move helped alleviate one of the biggest objections to hosted CRM: the fear that a migration would disrupt daily operations or lose specialized customizations.

Forrester Research Vice President Erin Kinikin weighed in on Siebel’s shift. “This is a revenue‑recovery play, but the real challenge lies in the channel. If the sales force and reseller network aren’t fully onboard, the promise of a $70 a month, fully featured solution will never reach the masses,” she said. Kinikin highlighted that Siebel’s traditional focus on large enterprises meant that its sales organization was not tuned to the needs of the mid‑market. She added that IBM, the OnDemand partner, also struggled to adapt its channel strategy for smaller accounts, creating a double whammy for Siebel’s entry into hosted CRM.

Despite these hurdles, CEO Tom Siebel set an ambitious target: by the end of 2004, OnDemand would become the world’s leading hosted CRM provider. This goal placed Siebel in direct contention with Salesforce.com, which already boasted more than 120,000 seats and had just rolled out its Winter ’04 edition. Salesforce’s new features - team sales management, enhanced workflow tools, and a tighter integration with mobile devices - made it a compelling alternative. Yet Tom Siebel argued that OnDemand’s deeper integration with Siebel’s enterprise stack, combined with its affordable price, would give it a unique advantage in the eyes of mid‑market buyers who required a full‑feature solution without the complexity of a large custom deployment.

Kinikin countered by pointing out that Salesforce had carved out a market of its own. “Salesforce created a demand curve that’s hard to overtake,” she said. “Their retention rate may not match raw subscriber numbers, and that makes them vulnerable if another vendor can offer the same software at a similar price but with a stronger success‑enablement framework.” This framing set the stage for the competitive battle that would play out in the next few months, as both firms worked to prove that their hosted offerings could deliver not just functionality but real, measurable ROI.

Cary Fulbright, Senior Vice President of New Market and Brand Development at Salesforce, responded by emphasizing the company’s commitment to customer success. “Our retention is now 99 percent, a significant improvement from the mid‑1990s,” he noted. “We’ve introduced a suite of programs - account management, training, and business reviews - to help customers realize value quickly. Most churn comes from companies that shut down, not from a failure to deliver.” Fulbright’s emphasis on support highlighted a key differentiator for Salesforce: a focus on the entire customer lifecycle, from onboarding to advanced adoption. This approach would later prove essential as the hosted CRM market grew more crowded.

In summary, Siebel’s OnDemand initiative was a bold attempt to disrupt the emerging hosted CRM landscape by combining cost‑effectiveness, deep integration, and a strategy to preserve existing UpShot clients. Yet the path forward required a partner ecosystem that could sell to the mid‑market - a challenge that both the company and its channel partner, IBM, faced head‑on. Whether or not Tom Siebel’s prediction of 2004 dominance came to pass would hinge on how effectively the firm could translate its technical strengths into a compelling business proposition for smaller enterprises.

Competitive Dynamics: Salesforce, Salesnet, and PeopleSoft

As Siebel positioned itself against Salesforce, other players were also reshaping the hosted CRM terrain. One of the most notable was Salesnet, a vendor that had long served the enterprise space but was pivoting to capture the growing demand for flexible, process‑centric solutions. Salesnet’s strategy focused on expanding its reseller channel to include companies that had a proven track record of selling lightweight, one‑time products such as ACT! or GoldMine to small and mid‑size firms. By leveraging these established relationships, Salesnet aimed to introduce a fully hosted platform that could compete on both price and customizability.

Kinikin described Salesnet’s approach as “flexible and process‑centric,” allowing the vendor to tailor its offerings to specific verticals and customer workflows. This flexibility positioned Salesnet as a strong contender for niche markets that required specialized process automation - such as healthcare, manufacturing, or education - without the overhead of a large, rigid CRM system. Salesnet’s channel strategy was designed to attract resellers who could provide local support and customization, thereby extending the reach of the hosted platform into territories that larger vendors often missed.

Meanwhile, PeopleSoft had taken a different tack. Rather than creating a new product line, the company opted to offer professional hosting services for its existing solutions. The approach varied from full‑service hosting, where PeopleSoft managed all aspects of the platform, to remote management of customer‑premise equipment - allowing clients to keep some control while still benefiting from cloud benefits. PeopleSoft could support deployments as small as 100 users, but Kinikin cautioned that the mid‑market segment might not see the same pull toward a fully hosted model. “People are buying hosted CRM partly because it’s a different approach than traditional CRM. Simply putting web screens on a server isn’t enough to attract interest,” she said.

Steve Earl, PeopleSoft’s Director of Hosting Strategies, offered a contrasting viewpoint. He emphasized that PeopleSoft’s hosting solutions were less about delivering a bare‑bones CRM and more about enabling end‑to‑end process automation. “We’ve been hosting CRM since 1999,” Earl noted, “but we see it as a process, not just a product line.” He highlighted capabilities that extended beyond simple contact management - financials, human capital management, and supply chain integration - all wrapped into a single, scalable architecture. Earl stressed that the platform was designed to help businesses automate and customize their entire order‑to‑cash cycle. “We support that,” he said, “and we can grow with the company.”

PeopleSoft’s architecture also allowed for a hybrid deployment model he described as “eat in or take out.” The company could host the core system while leaving certain modules on the client’s premises if required, giving customers the flexibility to meet regulatory or performance constraints without compromising on overall integration. This dual‑deployment capability was a key selling point for organizations that needed the reliability of a cloud system but also required certain on‑prem components for security or compliance reasons.

Across these competitors, a common theme emerged: the value proposition was shifting from pure functionality to a more holistic experience. Salesforce’s strong account management and training programs, Salesnet’s channel‑driven vertical focus, and PeopleSoft’s process‑centric architecture all sought to reduce the friction associated with cloud adoption. Each vendor was also addressing the cost concern by offering subscription models that lowered upfront capital expenditure - a critical factor for mid‑size firms that were wary of large, fixed costs.

In this rapidly evolving market, the ability to retain customers became as important as attracting new ones. Salesforce’s 99 percent retention rate was a powerful selling point, but it also highlighted the need for continuous engagement. Salesnet’s reseller strategy and PeopleSoft’s flexible architecture demonstrated that there was still room for differentiation based on local support and process integration. Ultimately, the competition forced all vendors to rethink their value proposition, ensuring that hosted CRM was no longer just a cost‑saving alternative but a strategic investment in customer success and business transformation.

Customer Retention, Value, and the Future of Hosted CRM

One of the most compelling arguments in favor of hosted CRM is the promise of doing more with a sales force while lowering upfront investment. By shifting the cost burden to a predictable monthly fee, companies can allocate more resources toward training, marketing, and new product development. However, this model also introduces a different set of risks and expectations for vendors.

Erin Kinikin compared the early phase of hosted CRM to a “training wheels” experience. “You pay month‑by‑month and see how it works,” she said. “If the sales force hates it, you haven’t lost a lot of money.” This analogy underlines the trial‑and‑error nature of early adoption. Vendors needed to provide robust onboarding, user-friendly interfaces, and continuous value delivery to keep customers engaged. Otherwise, the low barrier to entry could lead to quick churn, especially if competitors offered more compelling support or richer features.

Retention rates became a key performance indicator. Salesforce’s 99 percent figure, largely driven by a focus on account health and proactive engagement, set a high bar for the industry. Yet the company admitted that most loss came from businesses that closed, rather than from dissatisfaction. This nuance highlights a broader market reality: small and mid‑size firms are more vulnerable to economic shocks, which can affect their CRM spend regardless of product quality.

To address these concerns, many vendors invested in analytics that track usage patterns, feature adoption, and customer sentiment. By combining data with human insights, companies could identify at‑risk accounts early and deploy targeted interventions. This approach not only improved retention but also helped vendors refine their product roadmap to align with actual customer needs.

In addition to customer success programs, the architecture of hosted CRM solutions began to evolve. PeopleSoft’s “eat in or take out” model demonstrated how hybrid deployments could meet diverse regulatory and performance demands. Salesforce’s continuous integration of mobile and collaboration tools ensured that sales teams could work from anywhere. Salesnet’s vertical‑specific modules offered deeper industry alignment, allowing firms to adopt best practices tailored to their niche.

Looking forward, the hosted CRM market appears set to mature into a landscape where the line between hosted and on‑premises blurs further. Vendors that can deliver seamless integration, robust analytics, and scalable, customizable processes will likely lead the charge. The early promise of lower upfront costs is now tempered by a growing expectation of ongoing value, support, and the ability to evolve with the business.

In the end, the success of a hosted CRM solution hinges on more than just price. It depends on the strength of the channel, the depth of customer engagement, and the flexibility of the platform to adapt to changing needs. Whether a company chooses Siebel’s OnDemand, Salesforce’s proven platform, Salesnet’s vertical focus, or PeopleSoft’s process‑centric hosting, the real differentiator will be how well the vendor can turn a subscription into a strategic asset that fuels growth and innovation.

Lisa Picarille is a 14‑year veteran high‑tech journalist who started her career as a beat reporter with PC Week. She has held senior editor positions at InfoWorld, MacWeek, and ComputerWorld. Picarille has extensive experience running online tech sites and was the managing editor of CRN.com, the online home of Computer Reseller News. She also served as executive editor of TechWeb.com and night news editor for Wired.com. More recently, she worked as executive producer for TechTV.com and has freelanced for publications such as Iconocast, Wired, Rolling Stone Magazine, CNN.com, and Schwab.com. A Northeastern University graduate, Picarille began her career as a sports writer and voice‑over artist in Boston radio. She can be contacted at 415‑642‑1863 or lpicarille@destinationcrm.com.

Originally published at destinationCRM.