"Like putting lipstick on a pig," is how John Appleby, managing director of Salesforce.com, describes the approach of the application service providers (ASPs) that tried, and frequently failed, to deliver customer relationship management (CRM) software as a utility service. "Typically, they were hosting someone else's software, and aiming to deliver it over the web, when it wasn't designed for use over the net," he says.

Another problem was the complexity of the software. CRM is recognised as expensive, difficult and time-consuming to implement. It requires user companies to change business processes, and must be integrated into existing systems. "For many organisations, the acquisition process can be highly disruptive as well as expensive," says Aberdeen, the IT market analyst.

In particular, the high level of customisation typical of CRM systems means it is unsuited to the pure ASP model of a one-to-many rental service, based on a single remotely hosted and maintained application.

A further factor blighting the market is the attitude of the software vendors. Robert Tickell, European head of ASP development at IBM, says they are still struggling to come to terms with the ASP model, in which they have a monthly income stream rather than getting a licence fee upfront.

"Twelve months ago they were twitchy about it, but thought it was another channel [to market]," he says. "With the slowdown, the big vendors now say they can't afford a single deal that could generate a one-time charge to go to the ASP model."

To these problems on the supply side must be added the conservatism of potential customers concerned about ceding control of the security, and integrity, of their data to a third party.

The CRM ASPs are now adapting their business models and as a result the market is moving in two directions: high-end CRM ASPs are becoming a hybrid between traditional systems integrators and outsourcers; others are sticking to the pure one-to-many model, but offering a pared-down, non-customisable version of CRM.

"As ASPs react to the limitations and flaws of their initial market approach, they are embracing the parallels with earlier outsourcing models and representing their services to customers as an outsourced alternative to expensive internal IT cost centres," says Giga Information Group, the market analyst.

An example is Aspective, which provides Siebel CRM and analytics for Business Objects through the ASP model. "We formed to operate in the high-end large enterprise market, and we never said we would provide a one-to-many service," says Javaid Aziz, founder and chief executive.

Mr Aziz, former chief executive of IBM UK, says that at the low end, ASPs failed because they thought it was possible to have one copy of the software on a server. "In our model, the software is unique, the hardware is unique, but the network and disaster recovery are common."

Aspective deals with the software vendors on behalf of its clients, but pays for licences upfront in the traditional way. Mr Aziz claims that over a three-year contract, a managed CRM service from Aspective costs 60-70 per cent of installing and running the system in-house.

Another high-end specialist is 7C, which has "pre-integrated" a range of CRM software from different vendors, including Siebel, Cisco, Avaya and IBM. The company claims it can install this complete CRM environment, called Incenta, within four to six weeks. (According to Gartner, full-scale implementation of a CRM strategy can take up to four years.)

In addition, 7C says it will provide updates and introduce new technology from other vendors, thereby reducing the ongoing costs. "CRM is too complicated to be delivered on tap," says Duncan Wilkes, 7C's managing director.

"But we have achieved economies of scale because we have invested heavily in the development of a standard core that can be supported across a number of clients. But we don't say, 'one size fits all': CRM has to be tailored."

Norkom Technologies, a Dublin-based CRM ASP, allows customers to outsource specific CRM campaigns. "Many companies have a skills problem in-house because market analysts and data mining experts are not available," says Paul Kerley, founder and chief executive. "We offer them access to the software and the expertise to use it on a rental basis."

The CRM ASP model will work only if ASPs provide expertise, he says. "Users see they have an immediate need for CRM but don't know how to use it. With our service they can pick out, say, ten campaigns, and get us to run them."

Salesforce.com is one CRM vendor that has made the pure one-to-many ASP model work. It offers sales force automation software, one of the three key modules of CRM systems, for £45 per user per month in the UK. There is an implementation fee of about £5,000, but users do not pay for software licences.

The company was founded in March 2000 with $65m of investment from individuals, including Larry Ellison of Oracle and Gateway's Ted Waitt. Mr Appleby claims Salesforce.com has attained the economies of scale that eluded other CRM ASPs, and will break even by the end of 2002.

It has done this by writing its own software, thus avoiding licence fees, and by using a single hardware platform for all customers. Every client has the same release of the application, which cannot be customised because there is no access to the source code. This reduces the skills levels and the cost of maintaining the application.

However, it can be modified. For example, workflow rules can be changed to determine where a lead is routed when it comes into the application, and the look of fields and reports can be altered to create individual views of data.

Cost of sales was another factor that floored many early ASPs. "Our sales model exploits our own technology. We sell over the phone and use the web for demonstrations and training," says Mr Appleby.

"The early ASPs had flawed business models and flawed technical models. We started with a blank sheet of paper and developed the product from scratch. It is easy to use, and performs regardless of whether you have a high or low bandwidth [connection to the ASP]," he adds.

While the company's product may be very pared down compared to a full suite of CRM software, Mr Appleby says this is what many companies want. "Most are still at the sticky tape and elastic band stage in terms of CRM."