Gartner Study Finds that 42 Percent of CRM Software Licenses Go Unused

One of I.T.’s dirty little secrets is the problem of shelfware—not using software you’ve paid for. And the latest exhibit of this is CRM, according to a recent Gartner report. That study found that of the CRM software licenses purchased in 2002, an embarrassing 42 percent is unused—at an estimated waste of $1 billion to $1.26 billion to companies that purchased the software. Given that the entire CRM software revenue forecast for all of 2002 was $3 billion, that’s a lot of money to be throwing away in a tight IT economy.

So who’s responsible? It’s easy to blame the vendors because, after all, they do try to seduce customers into bulk software buying. CRM vendors often offer big discounts if a company will bundle a number of CRM modules together. The pitch is convincing: Buying functionality you don’t need now is cheaper than adding it on later. So it’s no wonder that so many companies take the bait.

But guess what? It’s costlier to buy more CRM licenses than you need initially, the Gartner study concludes, because you have to pay maintenance fees on those unused licenses. Yet that fact hasn’t stopped CRM customers from falling into this trap.

Non-IT Execs Buying Software

One of the problems is that CRM software is still being purchased by non-IT executives who don’t understand what the technology does. For example, at McKesson Health Solutions, a McKesson business unit that sells software to hospitals and insurers, a non-IT executive purchased three CRM modules in May 2002 from Pivotal because of the discounts that were dangled in front of him. But only one module—the sales-force automation (SFA) piece—has so far been installed, and even that app is still not being fully employed by McKesson’s sales force, according to an IT manager there.

Sitting on the shelf, this manager says, are two other components: a business intelligence app and software that integrates the SFA app with Microsoft Outlook so that sales meetings can automatically be entered into the Outlook calendar. "We don’t have enough resources to install the other two components," he says.

The cure? First, as this IT manager astutely notes, the people who use the app and the people who understand it should be the ones who decide what software is needed and when—not the senior executives who don’t even use the technology.

In addition, the negotiators (led by users and in-house IT experts) should analyze the benefits of buying software in small or large packages. CRM expert Beth Eisenfeld, lead author of the Gartner report, says a good rule of thumb is to limit initial purchases to the number of licenses expected to be deployed in the first year of the project. And the negotiators can build clauses into software contracts that enable the company to stop paying maintenance fees for unused licenses or modules. CRM vendors such as Siebel are beginning to allow pay-as-you-go or subscription model contracts with locked-in discounts. Sounds better than sitting on a shelf.

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Copyright © 2003 IDG Communications, Inc.

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