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Merging for Midmarket Dominance
Will acquisitions now be the rule rather than the exception? Will larger firms like SAP AG and Oracle start a buying frenzy that will end up with an even more polarized CRM landscape? The answer is yes and no, according to many analysts.
For the rest of the February 2004 issue of CRM magazine please click here
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In recent months many large CRM firms have been swallowing up smaller fish to capture as much midmarket share as possible. Most notable were PeopleSoft's acquisition of J.D. Edwards and Siebel Systems' purchase of UpShot (to drive business to its OnDemand hosted CRM solution). So, will acquisitions now be the rule rather than the exception? Will larger firms like SAP AG and Oracle start a buying frenzy that will end up with an even more polarized CRM landscape? The answer is yes and no, according to many analysts. "The biggest target acquisition is in the midmarket arena," says Sheryl Kingstone, CRM program manager at The Yankee Group. She also notes that there will be other mergers in addition to those made by larger firms seeking midmarket clout. "Point solution vendors may be eaten up by larger firms, and midmarket firms may simply merge for more expanded opportunities," she says. Dick Lee, an industry consultant and author, says that some mergers just do not add up. "A merger of two vendors with systems built on incompatible architecture usually winds up being 1+1=1, or less," he says. "And if we look at the failed Onyx-Pivotal deal, despite compatible architecture there was no market or technology traction between them, and good things all around it never happened. However, mergers will continue, including some that make no sense." Market valuation also plays into the equation, as smaller companies may be acquired at bargain prices. "There has certainly been a growing trend of consolidation in the ERP, and more specifically, the CRM industries worldwide that may well continue as long as valuations remain what they have been in recent months," says V. Carl Walker, an attorney at Torys LLP in New York, which handled the Pivotal-CDC merger. "I would caution, however, that as the number of attractive CRM providers dwindles through M&A activity or otherwise, the trend may slow or even reverse, and valuations may increase." And as the popularity of hosted CRM applications grows, mergers of hosted and nonhosted CRM vendors will likely arise, pundits say. Mike Doyle, chairman and CEO of hosted CRM provider Salesnet, recently made his opinion clear: "Client/server vendors can't just jump into the hosted CRM market. Hosted CRM needs to be built from the ground up, and Siebel is publicly validating that to enter into this industry client/server vendors will need help."
Although mergers will continue, ultimately there will be more new entries than departures into the CRM playing field, Lee says: "We're entering a period of fractionation rather than consolidation. The failure of the traditional vendors to listen to customers has left the market door wide open to newer and smarter software players with better hearing."
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