In-Depth

Racking up Online Deals

For Pelagic Solutions Inc., launching a business atop Microsoft Dynamics CRM Online leads to 78 deals in a year.

When Microsoft announced a customer relationship management (CRM) online component for its Dynamics CRM offering two years ago, Steve Bowles, who was then a principal with one of Redmond's regional Dynamics partners, was certain of one thing. There had to be a way to turn a Dynamics CRM Online business model which would consist of largely low-margin engagements of five to 20 seats into a profitable enterprise.

What that model was, and just how profitable it would prove to be, Bowles didn't know. Nor did his former employer, who rejected Bowles' idea on a Dynamics CRM Online-based business venture. Undeterred, Bowles did what any other motivated and ceaselessly innovative self-starter would do: He started his own firm, Pelagic Solutions Inc., which he conceived as a parent company to a pure Software as a Service (SaaS) CRM player CRM Online Labs.

Planning Pays Off
Two years and a Microsoft Partner Award later, Bowles and his Newmarket, Ontario, Canada-based Pelagic Solutions are riding high. They're enjoying growing market share CRM Online Labs closed 78 SaaS CRM deals last year at a time when many competitors, in both the on- and off-premises software segments, are just trying to ride things out.

So what's Bowles' secret? He stresses that it isn't only, or mostly, a SaaS deployment model. While boosters like to position SaaS as a recession-safe bet, Bowles says that in the market he targets small to midsize business (SMB) customers of 20 seats or less shops are slashing spending on everything.

"When a midsize company puts a spending hold on, they put it on hold across the board, whether it's for on-premises [spending] or Software as a Service," he says. "So did the economic situation help me? No, I wouldn't say it helped." He notes that one of his goals is to help Dynamics CRM Online customers transition to bigger and, from Certified Partner Pelagic Solutions' perspective more profitable on-premises deployments. "The economic outlook has made it easier for me to sell CRM Online over [the] on-premises [flavor of Microsoft Dynamics CRM]."

A bigger question is how Pelagic Solutions was able to successfully market a fledging, unproven SaaS CRM offering in a segment that already teems with entries that include Salesforce.com Inc., the veritable Goliath of on-demand CRM solutions and the poster child of SaaS itself.

 
"We try to work with experts in the field to see if what we're making is generic enough, but at the same time valuable enough in terms of addressing that 80 percent [threshold] for us to [productize it and] resell it."

Steve Bowles, Founder, Pelagic Solutions Inc.

Bowles says it's a function of careful planning, hard work, dedicated customer service, savvy marketing and, of course, the allure of the Microsoft brand.

"You have a business plan where you need lots of customers. So for [Pelagic Solutions], we need to sell 1,200 subscriptions a year, [and] I need to build that into a recurring revenue of $10,000 to $20,000 a month," he explains.

That's how you break even selling hosted CRM. Becoming profitable is slightly more complicated: "You need to look at how you sell services," says Bowles, noting that integrators and many SaaS providers derive a lot of their profits from services. The rub, of course, was that the SMB customers Bowles and Pelagic Solutions planned to target with CRM Online Labs couldn't afford to spend much on services. Paradoxically, Bowles saw this as an opportunity.

He came up with the idea of "packaging" SaaS CRM deals, which basically involves grouping similar customers into common pools. In this way, Pelagic Solutions is able to offer prospective clients "custom" CRM services that are tailored, for example, to the needs of specific vertical industries-in a cost-effective manner. On top of this, packaging-a-la-Bowles permits Pelagic Solutions to maximize its hourly billing rate. Call it an unalloyed win-win, SaaS-style.

"When we're adding these five to 10 user deals, we need to have packages available that help us maximize our own hourly rate. It's hard to find a 10-user account that will pay $5,000 for implementation services. Instead, they're more willing to pay $1,000 if they can get everything they'd get for $5,000," he says. "But if I can group them in with other customers group them into packages that's where some of the innovation comes in."

Innovation, in this case, involves giving customers most of what they need at an extremely low price point. "When we package [Dynamics CRM Online deals], we're able to offer them stuff that we would have spent 40 to 50 hours building for one customer for a specific industry. We can take that work and apply that instantly to all of the customers [in an industry package]," Bowles says. "So it gets them 80 percent of what they need at a fraction of what it would cost them to get it."

Model Partner
But innovation only gets you so far. In launching CRM Online Labs, Pelagic Solutions also focused on customer service especially in its go-to market efforts. For example, Bowles says he would try to contact customers within hours of their first downloading information about CRM Online Labs. "In the beginning, whenever they downloaded the [information] paper from the Web site, I would call them frequently within an hour. I knew that I had to get back to them immediately. If I didn't get back to them right away, we would lose them."

Hard work has been a constant since Bowles first dreamed up Pelagic Solutions. While Microsoft's Dynamics CRM offering now has more than six years under its belt, its SaaS CRM offering is a mere whippersnapper by comparison. Redmond only delivered the first rev of Dynamics CRM Online in April 2008.

Third-party independent software vendors (ISVs) have been relatively slow to support Microsoft's first-ever SaaS CRM offering, which Bowles says has complicated things for Dynamics CRM Online hosting providers. In the case of Pelagic Solutions, it's forced Bowles to work a little harder and be a little more scrappy than would otherwise be the case. "Right now, the vendors or the ISVs haven't really jumped on board for making products for Dynamics CRM Online. There're only a handful of products. A lot of existing products that were available for CRM 3.0 and migrated to 4.0 aren't available for [o]nline yet," he says.

A dearth of third-party solutions subtly undercuts what is, in fact, Dynamics CRM Online's greatest strength, Bowles suggests. "Dynamics [CRM] is almost exactly the same as CRM Online, without the security restrictions that Microsoft puts on [the online version], of course." Learning the ins and outs of Dynamics CRM Online's heightened security configuration was a challenge at first. However, Bowles says that notwithstanding a bigger security learning curve in the case of Dynamics CRM Online switching between the two platforms is largely a turnkey proposition. "Basically everything I do sits on top of Dynamics CRM even if it's hosted [like Dynamics CRM Online]. That's the real power," he points out. Bowles argues that this is crucial for a company like Pelagic Solutions that aims to support Dynamics CRM in either hosted via CRM Online Labs or on-premises implementations.

"You can start a customer with a customized version of CRM Online and migrate that to an on-premises [version] without any real cost," he says.

Better still, many of the customizations Pelagic Solutions develops are likewise portable between Dynamics CRM Online and Dynamics CRM, he says. Thus it's conceivable that Bowles and company could develop an industry-specific accelerator for an on-premises deployment where clients tend to pay a premium for integration or customization services. They could then roll it out to CRM Online Labs customers, too and at a fraction of the cost. In other cases, he says, Pelagic Solutions is open to working with CRM Online Labs customers particularly in new or emerging market segments to develop accelerators or customizations that the company can, in turn, package and resell.

"We have about six [custom] solutions to date that we've done. These include vertical accelerators or integration projects for things like QuickBooks, for example," he says. "So if we feel that the industry we're working with is of value to the rest of the market, we may make a deal with the customer as long as it's not proprietary to the customer itself. If we don't know a lot about the patient-care industry, for example, we'll make a deal with a doctor and say, 'How would you do patient care?' We try to work with experts in the field to see if what we're making is generic enough, but at the same time valuable enough in terms of addressing that 80 percent [threshold] for us to [productize it and] resell it."

Benefits of Branding
Another key to successfully selling Dynamics CRM Online is to embrace the Microsoft brand, Bowles asserts. This can be trickier than it sounds, at least when it comes to freshly launched products. Given Redmond's track record with first-generation products several come to mind like the first, less-than-inspiring release of Windows two decades ago; Microsoft BOB; the primitive Internet Explorer 1 Web browser and even Microsoft's now-discontinued PerformancePoint Server some Dynamics CRM Online providers might be understandably wary about promoting the benefits of a new Microsoft technology. But Dynamics CRM Online isn't technically a first-rev product, Bowles points out. "The Microsoft brand is absolutely one of our biggest advantages. We have the world's most trusted name: Microsoft. We're not going in there with something that somebody's never heard of," he says.

Moreover, Bowles suggests that Microsoft's traditional product-development story arc can also be made to work to its advantage. "We've seen Microsoft's traditional history of starting off weak with a product and becoming the strongest player."

Finally, Bowles urges that would-be Dynamics CRM Online power providers shouldn't overlook a couple of important best practices that never go out of style: first, know your audience; second, prepare, prepare and prepare again. Pelagic Solutions like a lot of SaaS players doesn't market directly to IT. Instead it targets business users, emphasizing a rapid-time-to-value and a point-and-click user experience. And Bowles doesn't just know his products or his competitors, both on- and off-premises cold. He also does extensive background research on the specific industries in which his prospective customers compete.

"I focus on industry-specific presentations that I make directly to the business [user]. I don't do a presentation without first doing extensive preparation," he says. "My main selling proposition is that I'll actually get them up and running and show them how easy it is to use during the trial. I have a 70 percent conversion rate at that point. That's it. I show a business user how to get started in CRM On Demand in five easy steps within one hour of their contacting me. That's all there is to it."