Like other midsize enterprises shopping for CRM software, Ventana Medical Systems faced two basic choices in 2005: choose a traditional application or opt for the newer software-as-a-service (SaaS) model and have CRM tools delivered directly to end users via the Web. In hindsight, the decision turned out to be something of a no-brainer, says Anthony King, CIO for the medical diagnostics equipment manufacturer. “Software as a service beats the alternative in maintenance, training, user flexibility and several other key areas,” he says.

In the past few years, several key factors combined to make SaaS an increasingly popular choice at companies like Ventana: Web technologies matured, applications grew more standardized, and the appeal of lower up-front capital costs, streamlined maintenance and easier scalability only became stronger. Robert DeSisto, an applications industry analyst at Gartner, predicts that “by 2011, 25 percent of new business software will be delivered as a service.”

Most midsize enterprises turn to SaaS expecting significant cost, deployment speed and maintenance benefits. (And, of course, many midsize companies don’t have the in-house IT staff to manage more applications.) They’re looking to SaaS to improve efficiency for core processes such as CRM, sales compensation management and ERP. But before they rush toward SaaS, these organizations also need to be sure that the functionality of the solution meets their business requirements and that they can integrate with their existing applications without a hassle. In some cases, customization options are limited.

Nevertheless, a growing number of midlevel enterprises have decided SaaS’s benefits far outweigh its drawbacks. “There’s no application in the world that you can’t run in-house if you have the money, resources and expertise,” says Laurie McCabe, an analyst at technology research firm AMI Partners. “The problem is that most medium [-size] businesses don’t have that capability,” she says. “In most cases, SaaS is economically a better way to go.”

Ditching the CRM Antiques

Many midsize businesses first test the SaaS waters with an on-demand CRM application. That’s because many midlevel companies have a dire need to overhaul antiquated customer support processes. Fortunately, SaaS meshes well with CRM technology, allowing companies with small IT budgets to run modern, sophisticated customer analysis applications on a pay-as-you-go basis, with only a minimal up-front investment.

At Ventana, the search for a CRM solution had reached “critical mass” by 2005. Customer contacts, crucial to the company’s continued financial health, were not readily available for field personnel because the data was either on paper or buried in an ERP system. “We basically were manual for the most part—Day-Timers, paper files and such,” says King.