When Alex Marxer began looking at customer relationship management software, on-demand CRM wasn’t even on his radar screen. As vice president of financial services for ResortCom International, a $15 million business-process outsourcing company for vacation property developers and managers, Marxer was looking for an enterprise CRM system for sales, marketing, customer support, self-service and analytics. He needed software that was flexible enough to accommodate the changing needs of his sales and marketing staff yet would integrate well with the company’s homegrown back-office applications containing all its customer contracts, invoices and financial transactions. So he had his sights set on traditional offerings from vendors like Siebel, Kana and Pivotal.

But then Marxer came across a hosted—or on-demand—CRM offering from RightNow Technologies that seemed to provide most of the functionality his business would need coupled with a particularly user-friendly interface. He was impressed with the price tag—just $125 per user per month compared with the $300,000 ResortCom would have to shell out for an onsite solution (not including implementation, infrastructure and support costs). So he signed a three-year contract with RightNow. "When we did the ROI calculations, it was an unbeatable value proposition," Marxer says.

Once the implementation began, however, Marxer ran into some problems. He wanted users to be able to launch RightNow applications as tabs within his back-office system. But that was impossible using RightNow’s application programming interface (API) tools out of the box. RightNow sent a team to Marxer’s San Diego office to work through a solution, which extended the implementation from the promised one month to three. Since ResortCom was entering its busy season (November through March), Marxer had to delay deployment until April. Since then, he has found that upgrading the RightNow software causes the integration with the back-office application to break. So he’s had to hold off on upgrading to any new versions of the software—and forgo the valuable new functionality those upgrades would bring.

Marxer is one of thousands of executives who’ve made the decision to take a chance on the on-demand CRM model. It’s a booming market—revenue from hosted CRM applications grew 105 percent last year, according to AMR Research. Small and midsize businesses and departments within larger companies have been drawn to these software-as-a-service solutions (payable on a monthly basis) because they’re much cheaper than licensed on-premise software, which can cost anywhere from several hundred thousand dollars to several million up front. Salesforce.com, which created the model for hosted CRM in 1999 and developed a strong foothold in the mid-market, is now offering functionality beyond sales-force automation and trying to sell its product to much larger customers. And traditional CRM players like Siebel (now owned by Oracle) and RightNow have been forced by Salesforce.com’s success to create hosted CRM solutions. Microsoft also recently announced plans to roll out an on-demand CRM product soon.