Consolidation in Billing and Customer Care Market Nearly Over, Research Reveals

The billing and customer care market is nearing the end of its consolidation cycle, and the handful of players still standing are likely to begin looking to expand horizontally into other areas, according to a new research note by The Yankee Group. The report, entitled "Executives Speak Their Minds About Industry Consolidation," also contains polling results indicating that industry executives rank CRM chief among the technologies likely to represent areas of expansion in the coming year. (Other technologies cited included operational support systems, business intelligence, and professional services.) The research note aligns with The Yankee Group's prediction from early 2003 that 75 percent of the consolidation in the billing marketplace would be complete by the end of last year. The study's author, Paul Hughes, director of the research firm's Billing & Payment Application Strategies unit, contends that, while "the billing and customer care market space will see a significant slowdown in the remaining consolidation," the acquisition strategies of the surviving players are likely to "remain active." Key billing vendors, he says, will soon expand into areas complementary to their core strengths: mediation, charging, settlement, inventory, and business intelligence. "You're dealing with a very mature market," and one that relies almost exclusively on long-term client relationships, Hughes says. "The marketplace has reached a point where growth comes from diversity. For billing players, you basically have two directions to go in: either further into the back office with OSS [operational support systems], or into the front office with CRM." Michael Couture, vice president of marketing at Amdocs, a leading billing and CRM vendor, agrees that consolidation has had a significant effect on the sector. "The market is much less fragmented than it once was," he says. As part of what Couture calls a move to "integrated customer management," many vendors are being asked to fill the role of service providers, which calls for "scalability, flexibility, and professional-services muscle that many vendors can't deliver on. As a result, we've seen many vendors exit the market and others be acquired." Two years ago, in fact, Amdocs acquired CRM vendor Clarify, and recently snapped up XACCT Technologies, a leading mediation vendor. And the company hints it's not ready to put its wallet away anytime soon. "In addition to our industry-leading R&D investment," Couture says, "we see acquisitions as a key part of our strategy." Hughes points to the Clarify acquisition as a prime example of consolidation--not merely an amalgam of technologies, but of users as well. "When Amdocs bought Clarify, [the billing giant] got the ability to sell billing into existing Clarify accounts, and to look [for users] outside the telecom space," he says. "It's driven a lot of the other [billing] players to say, 'If we're going to compete, we have to look at the kind of technologies that are going to get us into the front office.'" Those billing vendors that are still around, Hughes says, will either be "embedding technologies into existing products or acquiring smaller players." And as billing vendors buy their way into the front office, others are encroaching on their turf. "CRM players [such as] Siebel and PeopleSoft--they have to be looking at similar types of opportunities to go deeper into the back office," Hughes says. Acquisitions, he says, are still the way to go "if you're looking to expand your technology base or your customer base." For now, Hughes sees both the acquisition model and the partnership model continuing to thrive. As a result of the market's consolidation, "the vendors must now carry more of the burden for making systems work," Couture says. "When the market was highly fragmented it was very difficult to ensure that systems would work together. On paper, some of the best-of-breed architectures looked good, but in reality they proved very expensive and delivered few of the promised benefits." When things went awry, he says, the large number of parties involved"meant more finger-pointing than finger lifting." Calling the Amdocs/Clarify marriage "one of the most impactful acquisitions" in the space, Hughes says he's seen several seamless integrations of the two product lines, though confidentiality agreements preclude him from divulging the names of any specific implementations. The acquisition, Hughes says, has made believers out of Amdocs' competitors. "They're saying, 'Pre-integrated billing and CRM makes a lot of a sense.'" Couture insists the connection is unavoidable. "In some contact centers, up to 70 percent of calls are related to billing," he says. In pursuing Clarify, Couture says, Amdocs "believed that billing-CRM integration was among the greatest challenges the industry faced.... I would expect that the other players see this advantage and are looking to address their weaknesses. It's something you just can't match with alliances."