Introduction
The
overall customer relationship management (CRM) market remains the land of opportunity
but with many treacherous patches of quicksand for those who are uncertain about
their footprint breadth in the field of either install base and product scope.
It has been a "no brainer" the fact that the 2000s have been adverse years in
the entire enterprise applications market. Following the whopping growth rates
of the late 1990s, and the spending surge on sexy e-business-related technology
in 2000, hard times worldwide in almost all sectors have subsequently morphed
into harrowing times for all enterprise systems providers alike. While the biggest
and the richest vendors have been able to hang onto flat new sales, experiencing
modest declines, or, in other cases, modest growth, only a lucky and the most
apt few with true differentiation in a selected number of markets (e.g., warehouse
management and supply chain execution [SCE] or supplier relationship management
[SRM]) have even bucked the trend and have shown some enviable growth of late
(see The
Hidden Gems of the Enterprise Application Space).
It might further be interesting to analyze the recent years of the enterprise resource planning (ERP) and CRM markets to discern how fortunes may often fluctuate and go in different directions at certain phases of their respective life cycles. The term ERP, if not necessarily coming back into fashion, certainly is no longer a bad, pass term of a few years ago, when almost all vendors were distancing themselves from the association (like from a plague) because ERP was then perceived as off-putting (i.e., intra-enterprise versus entire external supply chain and collaboration focus). At the same time, anything associated with customer or front-office interaction was all the rage. It attracted both venture capitalists who poured their capital into new startup companies with brave ideas, while the customers were (over)buying these applications owing to the then buoyant economy and the apparent need to better manage seemingly mushrooming customer bases.
Recently however, while not exactly in its prime, ERP bears its ripe middle age well. However, CRM vendors are largely finding other creative ways to describe their purpose as, for example, "a leading extended e-business solutions provider", "a demand chain network (DCN) provider", or "a business relationship management [BRM] provider". Having experienced a rude awakening from an extreme and often unjustifiable enamor with dot-com's non-viable business models, and owing to a backpedaled growth of yesterday's hot items like CRM, supply chain planning (SCP) or e-procurement, many experts have suddenly, once again had an epiphany about the importance of solid back-office transactional systems. Namely, there is a renewed recognition that ERP is imperative to managing and controlling internal materials movements and processes. It forms the foundation for collaboration, e-business, CRM, supply chain management (SCM) and so forth. Therefore, while the traditional introspective mind-set of ERP becomes history, its functionality remains critical. The new economy of the late 1990s will not have caused the obsolescence of general ledger (GL) and accounts payable and receivable (AP/AR) for example. Quite the contrary, it will have only emphasized their importance.
Destiny or not, the near-death experiences of many ERP players, which will almost all have meanwhile found another proprietor (if not a viable business model like a sharp industry focus or some other defendable niche), had marked the end of an era when robust, inward-oriented enterprise transaction-crunching product suites were a guarantee of success.
Today's Enterprise Applications
Today's enterprise applications are required, as a matter of course, to address more than the processes taking place within the walls of an enterprise. While web-enablement and collaborative e-business will continue to be a major direction, a number of enterprise applications are gaining popularity. Easier enterprise applications integration or interconnectivity, more flexible pricing, plug-and-play applications that support commonly accepted standards (reflecting a reduced need to heavily customize multi-vendor solutions), and embedded analytical applications, knowledge management (KM), workflow and business process management (BPM) are some of the best prospects among the ongoing wave of enterprise applications hot-buttons. It is needless to say that almost all traditional ERP vendors (small and big alike) had to experience a wake-up call and have long been trying to expand their product offering in tune with the ever-changing trends and requirements of the new collaborative economy.
To
that end, over the last few years, all significant enterprise applications players
have been actively partnering or finding other ways to provide solutions that
allow businesses to collaborate more effectively. Consequently, the boundaries
between ERP, CRM, e-commerce, and SCM have meanwhile blurred so much that any
attempt to functionally separate them becomes ever more pointless (see SCP
and SCE Need to Collaborate for Better Fulfillment). If the ultimate objective
is to win and retain customers, one must consider the entire chain, which includes
traditional ERP and SCM functions as well as the once considered more remarkable
and supposedly more relevant CRM and e-commerce activity.
The
cycle begins with the attraction of the customer through sales and marketing.
This hopefully results in an order management and fulfillment process and ends
with a customer service, which can involve anything from field installations
through to enquiry and complaint management. All of these steps have to be executed
well without exception. Otherwise, the prospective customer will end up on a
competitor's list of customers. Therefore, the relative importance of CRM versus
ERP, ERP versus SCM or of any other match-up is irrelevant. All of these functional
areas are critical, except for some esoteric or autistic businesses that can
go by with implementing islands of information. The "64,000-dollar question"
is how all business processes work together. In the electronic world, the degree
of flexibility and efficiency of collaborative processes relating to the customer
life cycle, product life cycle, and so on, to name but a few, will be a big
determinant of losers and winners. Proof of the above might be the fact that
the traditional large ERP providers like SAP, PeopleSoft
and Oracle can claim bigger CRM-related revenues than every
pure-CRM vendor except for Siebel that still clings to its CRM leadership position.
Therefore,
even though there are some indications of an economic recovery, the recovery
of many beleaguered CRM vendors in a still overcrowded market is by no means
guaranteed. A good example would be Applix, with its relatively
recent exit from the CRM market that coincided with Microsoft's entry into the
market (see Will
A Big Fish's Splash Cause Minnows' Flush Out Of The CRM Pond?), and Chordiant's
similar shift of focus onto the BPM market . Additionally, the Xchange's
also relatively recent demise too may exemplify the other side of the CRM medal
nowadays (see Xchange
Adds To The List Of CRM Point Solutions' Casualties), as droves of smaller
pure CRM vendors have been hard pressed to survive owing to the combined effect
of CRM users' disenchantment with the products' hardly ever materialized benefits,
after a hasty infatuation with its touted "silver bullet" mantra (which once
also happened to its older sibling ERP's users), compounded with the tight IT
budgets due to the worldwide economic recovery delay, but especially with Microsoft's
entry into the already crowded place.
To
that end, in December, Microsoft Business Solutions (MBS) announced
the general availability in North America of Microsoft CRM 1.2,
the first scheduled release to Microsoft's flagship CRM offering since it was
launched in January 2003, and which builds on the existing functionality available
in Microsoft CRM 1.0, and which enhances usability and performance
for customers using the new version. This release also marks the global expansion
of Microsoft CRM, which will be available in nine languages (US English, British
English, Brazilian Portuguese, Danish, Dutch, French, German, Italian, and Spanish)
and more than forty-seven geographies around the world. For departments of large
organizations, Microsoft CRM 1.2 supports Microsoft Windows Server System
2003, Microsoft Exchange Server 2003, Microsoft
Office 2003 and, for small businesses, Microsoft Small Business Server.
The newest version of the product also contains improvements in workflows, an
easier set-up process, enhancements to the UI to improve usability and increase
flexibility, additional data evaluation capabilities, and further support for
lead tracking and sales territory effectiveness. Microsoft CRM 1.0 has enjoyed
great success, recently achieving a significant mark of over 1,000 customers
in North America. The product has also been attractive even to MBS's ERP competitors
in Europe, such as Scala and K3, which have
decided to embed it nonetheless (see Scala
and Microsoft Become (Not So) Strange CRM Bedfellows).
Size Matters
Larger
enterprise applications (including CRM) vendors have, on their hand, been weathering
the storm by relying on cross-selling broader CRM application suites to their
existing and potential customers, involving also components such as sales force
automation (SFA), employee relationship management (ERM), sales configuratorsor
call centers. Even if the upswing for CRM software happens, it will likely concern
the middle- to low-end of the market, with hosted CRM gaining reinvigorated
standing. Big vendors such as SAP, Siebel, PeopleSoft (including recently acquired
J.D. Edwards) and Oracle have long been trying to capture the
mid-market, while the smaller players will have to regroup to fend off the threat.
Particularly indicative was the fact that more than two years after launching,
spinning off, reabsorbing, and eventually discontinuing its ill-fated original
hosted CRM offering, Sales.com, Siebel recently teamed up with
IBM to offer the Siebel CRM OnDemand product. The CRM leader
with sliding revenues lately has recently also acquired a hosted-CRM vendor
UpShot, and hosted contact center solutions provider Ineto,
both for their install base in the lower-end of the market and for its hosting
expertise. Siebel's past focus on the high-end of the market will mean from
now on the vendor will have to think deeply how to decrease costs and complexity
for the small to medium-sized business (SMB) market. The lucrative $3,000-per-seat
(USD) or more and multi-months (if not still even multi-years) implementations
increasingly sound archaic nowadays like the former Soviet Union.
Furthermore, although many pure-CRM solutions have been maturing and improving, they must continue to facilitate integration with back-end systems, given the increasing awareness of this need for full-fledged benefits of CRM. Further, they must also provide the differentiation through verifiable return on investment (ROI) metrics, and indispensable features and functions germane to selected industry verticals. Namely, the reason for SCE and SRM applications ongoing recent success lies greatly in the fact that often more than 50 percent of companies' revenues and the top line are spent on goods or services purchased. In other words, whatever cost is saved from the bottom line through the use of these applications will translate directly to increased profit margins, making software buying decisions much easier to justify. This is not, however, the case for CRM applications, where, for a company wanting to increase its profit margin by say 10 percent, sales revenues will have to be increased tenfold to have the same effect of a 10 percent cost decrease would achieve through more efficient procurement. It does not take a rocket scientist to realize which alley will be more likely pursued in any economy, let alone during these still subdued times.
Furthermore, some SCM applications can be extremely complex, especially strategic network planning and optimization or advanced planning and scheduling (APS) that often seem to require a PhD to grasp, whereas most of the CRM functionality is, comparably, fairly uncomplicated. For the reasons above, CRM applications lend themselves well to being offered as a hosted application. Other than in cases of running complex call centers as a part of important customer and field service strategies, or of having highly confidential contact management applications in some highly peculiar, classified or regulated industries, not many CRM applications justify deployment of larger, on-premise CRM application, with long implementation timeframes.
The Challenge from Innovative Hosting CRM Startups
To
that end, Salesforce.com has espoused a sort of a disruptive
innovation and has rattled the CRM establishment with its hosted CRM solutions
and appealing price and implementation advantages. Ease of use, intuitive UIs,
broad but not terribly deep functionality that is rapidly deployable, and its
low price tag are the latest values that SMBs worship and that Salesforce.com
has embraced. Thus is has even prospered during the IT downturn by reaching
the $50 million (USD) revenue mark in less than four years since its inception
in February 2000, and recently it announced the initial public offering (IPO)
that should raise approximately $115 million (USD) of capital. Also, Salesforce.com
has never been content to remain a mere hosted or on-demand CRM provider. It
has also built a hosted applications platform and developed a CRM application
atop of it.
Nonetheless,
Siebel's forays into hosting will have also raised the bar through embedded
workflow, embedded analytics, built-in connections to back-office systems, and
the provision to migrate or upgrade to the on-premise application. As a response
to the challenge, Salesforce.com, which offers its on-demand CRM application
to more than 8,400 customers and 110,000 users in over 70 countries via a web
interface, very recently announced its Winter '04 edition. Because Salesforce.com
is rather a provider of "software as service" that customers reach by browser,
the Winter '04 update will reportedly not require installation.
Instead, existing users will have immediate access to its new features and tools,
among which are an integrated analytics engine with personalized dashboards
that users can customize to show snapshots of desired metrics and sales key
performance indicators (KPIs). Moreover, new real-time alerts can deliver notifications
of important events such as a contract deadline, via e-mail to both networked
and wireless-connected devices. Enhanced workflow will enable the creation of
business rules and triggers to automate and standardize business processes,
which have so far been the privilege of traditional on-premise CRM software.
The
Winter '04 release also exhibits a new contract management sub-module that helps
salespeople create and track customer contracts. It has enhanced integration
with legacy third-party applications, and popular desktop applications such
as Microsoft Word and Excel, and it supports
eleven languages and all major global currencies. The new global translation
workbench feature provides "on-the-fly" translation and automatically composes
reports in the language and currency of choice. As for letting users customize
the behavior of hosted CRM application, new custom objects and so-called "s-controls"
will allow enterprises to extend the Salesforce.com database, and build custom
applications, screens, and forms without needing on-premise infrastructure.
Furthermore, Salesforce.com also delivered its web services-based platform for
building hosted applications, sforce 2.0, to all users as part
of the Winter '04 rollout. Also referred to as an "on-demand application server",
sforce 2.0 should allow developers to customize, integrate, and extend the Salesforce.com
UI, business logic, a data model, and to host and store code for new custom
applications. The Salesforce.com service can then be used to deploy and manage
them.
This
may reveal another trend in the CRM market, in addition to the need for the
integration to back-office and other enterprise applications. Rather than delivering
"canned" hosted solutions, new CRM offerings have focused on giving users more
for less, including improved flexibility and customization, done through configuration
rather than the dreaded source code changes. To that end, another on-demand
CRM/ERP start-up vendor, NetSuite (formerly NetLegder),
also recently delivered new tools that let the user organizations customize
their products with the addition of database tables, and custom code written
in Javascript. Namely, the new custom records feature of the web-based CRM application
lets users define their own custom record sets that can be mapped to standard
records (master data) within NetSuite. As an example, defect or issue management
records can be created with this custom feature to track the severity and status
of the problem, and then linked to NetSuite's own standard customer support
case history for tracking and analysis. Another example of using it would be
for validating that phone numbers are entered in the proper format and for building
and enforcing company sales methodologies by requiring users to take a specific
set of steps as they enter and track a sales lead.
A
number of other vendors with value proposition along similar lines would be
ACCPAC (soon to be part of Best Software),
Best Software with its renowned SalesLogix product within the
SMB market, FrontRange with its recently enhanced GoldMine
6.5 release, as well as the SAP Business One ERP/CRM
product for the SMBs. A number of smaller CRM vendors have also been trying
to focus on niches to survive. For example, hosted-CRM provider SalesNet
has recently started to team up with vendors who are vertically-focused. RightNow
Technologies has been focusing on the customer service area, while
the startup WhisperWire is targeting the telecommunications
industry.
Competitive Pressures on Pure CRM Vendors
Thus,
the likes of Pivotal, Onyx, Kana
or E.piphany have been feeling the competitive pressures coming
from many directions. Despite many mid-market and niche CRM vendors' attempts
to overcome these challenges, many will continue to struggle to avoid insolvency,
while the luckier ones with some attractive point solutions--such as partner
relationship management (PRM) or portal solutions--will become the acquisition
targets of large enterprise vendors who would gladly incorporatethem. As an
example, marketing automation and PRM point solution providers have particularly
fallen prey to pessimistic investors and diminishing global corporations' appetites
for technology (Who
Alleges The PRM Market Consolidation?). Thus, the need for providing a full,
comprehensive CRM suite rather than an individual solution or a bundle of point
solutions for each distinct CRM area remains firm, and will urge further CRM
(and overall enterprise applications for that matter) market consolidation.
The recent merger of the PRM vendor ChannelWave with the e-commerce
service provider Aqueduct, and GXS's acquisition
of HAHT Commerce confirm the need for a broader
functional footprint as a way of extending the vendors' life expectancy.
The
seriousness of these narrow product footprint vendors' predicament might be
well illustrated by the already mentioned Applix' market exit, given the vendor
had a solid CRM product breadth and technology foundation, a good implementation
track record with nearly 1,000 satisfied customers, and some notable endorsements
from ERP vendors that have been remiss in delivering their own CRM (i.e., SSA
Global and Geac Computers Corporation). Many pure-CRM
players that cannot even come close to the above traits should do their own
math and analyze the justification of their independent existence within the
CRM battleground.
Why has it been so difficult for certain CRM point solution providers to even find a "white knight", which has not generally been the case with even ancient ERP products? With several generations of some ERP products being available over a long period of time, the product development costs have been spread among a large population of users. These annual service and maintenance fees thus represent a substantial portion of revenue for most ERP vendors, and even if the product has not been actively marketed any longer, that revenue stream is going to be attractive to someone, if not to the original developer. This large installed base also allows for a greater aggregated vendors' experience, resulting thereby in higher-quality tried-and-true products.
The still untapped ERP mid-market segments will have also benefited by vicariously learning from mistakes and failed ERP implementations in many commercial companies in the past. Additionally, many ERP systems are now also componentized, which provides phased implementations in more manageable chunks (instead of a traditional "big bang" approach) in addition to vendors' developed implementation methodologies that are based on bypassing the usual traps of past failures. Many ERP systems have meanwhile also been internet-enabled, which also allows for a quicker and simpler implementation, because client machines do not have to be configured time and again. Consequently, a prospective customer also has a choice of either installing software on its own intranet or renting it via an application service provider (ASP). Moreover, the leading ERP vendors have incorporated CRM, SCM, e-procurement and business intelligence (analytic) modules by developing them in-house, by acquisition or through strategic partnerships with the best-of-breed vendors.
Both a large customer base (i.e., recurring revenue) and incremental products enhancements will have favored ERP vendors' longevity in the market, which has not been the benefit of many CRM weaklings. Many of them will not have gathered a large enough client base to find an interested suitor to try to recuperate an immense investment given these products had to be developed on cutting-edge technologies from scratch, as seen in the Xchange's case above.