Missteps in Midmarket?

The hoopla over the potential of the CRM midmarket may be a little overblown, according to Beagle Research Group. The firm says the recent buzz and vendor focus on the midmarket as the next lucrative arena for CRM is out of step with what's really happening. Most analyst firms are predicting significant CRM adoption among midmarket companies. Jupiter Media Metrix, for example, estimates that the purchases of CRM, e-commerce, and financial management applications by small to medium-size businesses in North America will grow to $3.4 billion in 2006, up from $971 million in 2001. AMR Research says the midmarket, combined with divisions of enterprises, is a $44.1 billion CRM opportunity over the next 10 years. Figures like those are spurring CRM giants like Siebel, Oracle, SAP, and PeopleSoft to beef up their respective midmarket offerings in hope of cashing in on the growing market segment. But company size may not be the real indicator of potential CRM adoption. The very notion of segmenting markets based on size (by revenue), according to Denis Pombriant, managing principal of Beagle Research, and using that as an indicator of which companies are likely to purchase technology is out of whack with how companies actually adopt technology. Pombriant says: "There is a big disconnect when talking about the midmarket." Conventional wisdom says that larger companies with bigger budgets are more likely to be early adopters of technology, while small businesses are, typically, technology laggards. But the majority of buyers, the "mainstream," are in the middle, chronologically. However, Beagle Research data shows that small, medium, and large companies comprise the early-adopter cohort of the CRM adoption curve, thus proving that all sizes of companies are buying all the time. "The old way (of segmenting the market) doesn't stand up to scrutiny," Pombriant says. The average business using CRM today has revenues of about $9 billion, which makes the average CRM early adopter a very large enterprise. However, the median company using CRM has revenues of only about $300 million, which clearly positions it in the midmarket, according to Beagle. Rather than considering solely company size as an indictor of potential CRM adoption, Pombriant suggests evaluating other criteria. Important factors to consider include the resources to invest in expensive, new, or relatively unproven business technology, which often cannot show a positive ROI; being comfortable with the risk inherent in investing in business technologies that are not fully proven; and seeking out innovations that help gain a competitive advantage. Pombriant suggests that customers and vendors alike use a scoring system to determine whether a specific organization is likely to adopt CRM technology. A CRM score or profile should be part of every sales process, as well as an important part of any self-analysis a company goes through when considering CRM technologies. Using this CRM score is especially important for vendors Pombriant says, because, "by definition, when selling a highly conceptual product in a new market, vendors must look for early adopters. And more than identifying a budget, vendors should identify who in the organization is the real risk-taker and is able to get funding through unconventional routes." Last, Pombriant adds that simplifying implementation, maintenance, and management are necessary adaptations by vendors moving to the mainstream market, but that vendors need to go farther, and need to understand the motivations of their buyers.