CRM Vendors Fight For Survival

The heat is on for CRM. Customers have always expected--sometimes without evidence--that pricey CRM installations pay off, but in this down economy, with CRM vendors fighting for survival, the pressure has never been worse.

In theory, CRM is a strategy that connects disparate inventory, accounting, call center and other systems to better serve a corporation's customers. The goal is not just to save money, but to make money for the company investing in the system. In other words, a successful CRM solution should not only boost customer retention, but boost revenue per customer. The reality, as evidenced by widely reported CRM project failure rates, is somewhat different, integrators and vendors admit.

CRM'S UNCERTAIN FUTURE CRM kingpin Tom Siebl says he predicts a significant shakeout among developers in this once-healthy software sector. Integrators agree only a handful of vendors will survive intact and that the round of consolidation kicked off by the merger of Broadbase and Kana has only just begun.

"There's been a lot of talk out there about this miraculous market recovery that's going to happen in the middle of the year," said Siebel during the company's earnings call with analysts two weeks ago. "While we enjoy reading about this . . . we see no evidence of it in the marketplace. The default answer for the procurement of information technology in the second half of this year, whether it's dot-com servers, Unix servers, toolsets to build Web site or HR applications or databases, the answer is 'No.' "

Some industry analysts say Siebel was simply managing expectations for his company's next quarterly earnings. But no one questions his contention that a significant market shakeout is under way in CRM.

Adam Honig, president of Akibia Consulting, a Boston-based CRM specialist, expects only three or so CRM companies to remain viable. His picks: Siebel, Oracle and SAP. "The small guys will just go away," he says.

The warning signs are loud and clear. In the first week of July, E.piphany, Pivotal, Informatica and Art Technology Group all cautioned that their second-quarter numbers would not meet Wall Street's expectations.

Siebel warned analysts to expect more of the same. "We've met our plan for the first quarter," he told analysts. "We're one of the few that did. I'm told 1,700 companies have preannounced [bad earnings] in the past six months. This is a difficult environment for technology. It's tough and it's going to get tougher."

During the Web boom, a flock of so called e-CRM companies were born to focus on how online customers interact with virtual businesses. The challenge for those companies now is being able to serve companies that field both brick-and-mortar and Web operations. These Web-focused vendors must offer services across all the "touchpoints" of the relationship-interactions that occur over the Web, over the phone, over ATMs or in person.

"Everyone's a CRM company now. The term is bastardized because companies ran from e-commerce to e-business to CRM," says Kirsten Cloninger, industry analyst for Cahners In-Stat.

And the shift has prompted a spate of mergers. E.piphany bought RightPoint, Octane and e-class direct to fill in its product line and offer a "broad CRM footprint," says Paul Rodwick, vice president of market development and strategy for the San Mateo, Calif.-based vendor.

Back in 1999, "a lot of new companies had no retail sales force, no call centers, so it made sense to use an online-focused [CRM] product," says Akibia's Honig. "Today you need to go across all the different channels. Even Wal-mart and Nordstrom's, which do great on the Web, only do a small percentage of their business there."

Within all enterprises, the push is on to eliminate "silos" of information tappable only by a circumscribed group of applications within a business function. Accounting information should be available to more than just the accountants, for example. It might be extremely helpful for customer service representatives to know if a customer has paid his bills.

The all-too-common horror story is the call-center application that asks a caller to punch in his phone number only to connect him with a customer rep, who asks for his phone number.

That's a classic case of a company not integrating its systems, says Lawrence Byrd, CRM evangelist for Avaya, Basking Ridge, N.J. "How much money is it worth to that company to stop annoying its customers?"

Ensuring that data is available to all the applications that need it, while ensuring security, is a huge order, say vendors and solution providers.

"Few companies are positioned to take that macro outlook on how we support customers so they're not silo-oriented around business processes," says Robb Eklund, vice president of CRM marketing for PeopleSoft, Pleasanton, Calif.

Integrators and vendors alike contend that CRM remains in the top three applications for virtually every corporation. But at least one survey shows that interest in CRM isn't what it's cracked up to be. The recent Gartner IT Spending survey showed that 56 percent of the 600 companies responding plan to spend more on IT this year than last. But the respondents appeared more interested in spending on PDAs, e-commerce and application integration than on CRM, according to research director Barbara Gomolski.

Observers expect the next wave of consolidation and mergers to eclipse the trend already in place last year with PeopleSoft's completed acquisition of Vantive in January, and Kana's buyout binge of Silknet and Broadbase. Many expect Nortel to sell off Clarify, and its call-center expertise to a another player, perhaps SAP.

Citing Dun & Bradstreet numbers, Siebel said some 300 packaged applications companies went out of business in the fourth quarter alone and he expects more to fall.

"We have been seeing and continue to see rapid consolidation even in the course of this year," he said, ticking off a litany of companies from Sage PLC to BroadVision and Kana and Chordiant that he considers "gone."

Those "gone" companies take exception with that assessment.

Don Morrison, executive vice president for Chordiant, Cupertino, Calif., disputes Siebel's use of the past tense. Chordiant posted 151 percent revenue growth year over year for its second quarter ended June 30, 2001, with revenue reaching $18.5 million from $7.4 million the year-ago period. But it didn't actually earn a profit: Its pro forma loss was $7.5 million, or 14 cents per share, largely due to its own acquisition binge.

Some analysts point to Chordiant as a company that might buck the shakeout trend. Chordiant has made some very strategic acquisitions and picked up some good technology, says IDC analyst Mary Wardley.

Smaller vendors can do well, Chordiant's Morrison notes, if they specialize and hone in on key markets.

"The only way a CRM player survives in this market is to be focused," he says. "We are not all things to all people while many of these other companies had been pursuing an Internet-only strategy or a much broader strategy than the size of the company could support. R&D issues become pressing in a tough economy."

Chordiant focuses on customers with realtime transaction needs--retail banking and consumer credit applications, for example. As such, Chordiant systems typically tie tightly into transactional databases from IBM and Unisys that are prevalent in such accounts.

Still, the ongoing consolidation means bigger companies with more resources will bring together historically distinct CRM categories--operational, analytical and interactive, says In-Stat' Cloninger. Note that Siebel has its roots in operations, E.piphany in analytics and newcomers like ATG focus on interactive, personalization technologies.

E.piphany's Rodwick says vendors with full coffers will be able to ride out the downturn while weaker players will fall away. "Most people are now forecasting that high-tech won't recover until the middle of next year. That's something like seven consecutive quarters--a rather lengthy down cycle."

He maintains that E.piphany's $350 million in cash could last the company five years at its current burn rate.

As with any Darwinian shakeout, the stronger players will emerge even stronger. Market researcher IDC says the CRM market should grow to $14 billion in 2005 from $6.2 million this year, showing a healthy 17.7 percent compound average growth rate, according to program director Mary Wardley. Her view is that "budgets remain intact for CRM."

Of course those dollars will be spent more slowly than before. The CIO of yesteryear who signed off on multimillion-dollar implementations without a proof of concept is long gone.

The buying cycle now takes longer and has more phases, say CRM integrators.

"People want a proof-of-concept and then the first phase may be a $200,000 deal vs. a $500,000 deal. People are more cautious and they want quantifiable ROI," says Mark Selin, vice president of sales and marketing for Equarius, Bellevue, Wash.

"We've always taken an incremental approach. Most of our CRM deployments go in in less than 90 days," adds Burley Kawasaki, vice president of e-business solutions for Equarius. "The key is to plan out projects that will yield real returns right away and make sure they fit into an overall strategy that will grow with time.

It's not necessarily a negative that vendors and their partners prove the worth of multimillion-dollar installations before billing for them, observers say. The current atmosphere of caution could be a boon to integrators that know how to connect disparate applications and actually get them working together. No matter how irritated a buyer is that his $800,000 CRM implementation isn't as productive as he thought, he is not likely to face the political cost of dumping it, observers say.

"We're hearing a lot from clients who've invested in one or more software packages that are now shelfware," says Kawasaki. "They're at the point of deciding whether to scrap it and buy something else or pay someone to make it work. . . . We can go in take what they've got and stitch it together with back-end systems, with EAI tools, so they get a view across the enterprise."

Tweet

   

More Channel Programs