The Opportunity Cost of Ownership in CRM

I caught the tail end of a Twitter discussion, yesterday, between rwang0 (Ray Wang) and two friends, Mitch Lieberman and Esteban Kolsky. Ray had stated that while “Total Cost of Ownership” may look the same on the surface, SaaS vendors have a lower internal cost and therefore more dollars available for R&D and innovation. This is due to the 1 to many infrastructure of SaaS. I’m not interested in that debate, at the moment, although it’s an interesting point. I’m more interested in talking about successful customer outcomes.

I see a number of problems with this focus on cost. The differences between purchase cost and total cost of ownership both miss the mark for the customer, in my mind. I will contend that SaaS is good for the vendor, if Ray’s argument is valid – and I will assume it is. But, is it also good for the customer (the long-term success driver)? Is cost the outcome we should be looking for in the CRM world? For that matter, are features what we should be looking for? Isn’t this approach to CRM software what has taken us from a pretty good idea in the 1990’s, to the treatment of CRM as an object and commodity now?

The Opportunity Cost of Ownership

Focusing on features and cost is exactly where the vendors wanted us to go, even though, in many ways, they’ve trapped themselves. They present themselves as the solution, when in reality they are merely a tool for supporting solutions designed elsewhere. It doesn’t matter if it’s on-premise or SaaS, the result has been the same. The on-premise vendors make a TCO case just as well as the SaaS vendors do. It’s a common debate I’ll leave to the sales people. But what do you give up as a customer in exchange for a low price with R&D/ Innovation potential (that you don’t control)? What is this really costing you?

• The nearly limitless customization of on-premise – if you believe in delivering differentiating outcomes for your customers, how can a platform so inflexible as multi-tenant SaaS be the answer? If you’re not supporting their unique initiatives, how is cheaper solving their competitive problem? Would SFDC design their platform the same way if they were starting over today (h/t Mitch)?
• Integration with other platforms – In many companies I work with, there is a benefit from integrating front with back office systems. I believe Salesforce.com integrates with QuickBooks, maybe some others. I’m assuming it’s cost prohibitive to do so with other back office platforms on an as-needed basis or I wouldn’t see prospects coming from SFDC specifying this as a problem. It was costing them.
• Outside-In Businesses – these organizations operate differently. Do inside-out platforms give them the tools they need, the way they need them? After all, they were designed by inside-out companies – which calls into question what innovation really means to them. If you were to deliver innovative solutions to the real needs of your customers, would the platform’s value be expressed in terms of Total Cost of Ownership?

I’m just asking, should we be considering the opportunity cost of ownership with regard to the total cost of ownership argument? How does the focus on cost drive the value side of the equation? What are you thoughts?