The Vendor Vultures

It’s becoming increasingly difficult to identify a CRM vendor’s key competencies or customer base. The game of moving upstream and attracting new customers seems to have grown more complicated — with the mainstays in the CRM industry entering new sectors, marketing to new segments, and even targeting competitors’ customers with the lure of better offers. 

One key player in this still-shifting competitive landscape is Salesforce.com, which, despite breaking the billion-dollar mark in annual revenue and a much-publicized effort to target enterprises, decided 2009 was the time to introduce what some called a long-overdue offering for contact management. (See our cover story, “The Next Billion Dollars,” page 21, for an in-depth look at the company on the 10th anniversary of its founding.) 

At a single-digit monthly price point — just $9 per user — Salesforce Contact Manager is the company’s fifth edition of CRM, and, harkening back to its roots among small-and-midsize businesses, the first geared toward small-business owners and entrepreneurs.  

“We could definitely see…Salesforce Contact Manager edition taking away some customers from Act! [by Sage] and from [FrontRange Solutions’] GoldMine,” says Denis Pombriant, principal and founder of CRM consultancy Beagle Research Group. (Perhaps not coincidentally, Salesforce.com’s product launch came just days after Sage had unveiled the latest version of its Act! by Sage contact management solution.) Salesforce.com’s low subscription rate might seem attractive, he adds, but won’t amount to much long-term savings over the three-digit purchase price for competitors’ installed software. Is it enough to worry the established contact management players? Maybe, Pombriant says, but this is a relatively untapped market with room for all. Plus, he adds, “Sage has been doing a lot of things with Act! in anticipation of…some direct competition from a larger company.” 

Salesforce.com isn’t the only “larger company” crowding in. When Sage’s biggest reseller, Dallas-based MIS Group, unexpectedly shut its doors in early July, software giant Microsoft swooped in, offering a 25 percent rebate and a 50 percent discount on licensing for any Sage customer who moved to Microsoft Dynamics. Such poaching is expected when a company hits a bump in the road, says Laurie McCabe, partner at consultancy Hurwitz + Associates. She adds that, while the public may have been surprised by the closing, Sage still has a couple thousand CRM partners and doesn’t appear to be in jeopardy. “If I saw a big Sage shop going out of business every week, I’d start getting really concerned,” she says. “In this economy, this seems to be a blip, not an ongoing, spiraling trend.” 

McCabe also notes the long legacy of CRM scavenging, suggesting that what goes around comes around: “When Salesforce.com was a wee little one, it was all about what business [it] took away from Siebel [Systems].” Scavenging, she adds, may even be unavoidable to a certain degree. “It’s almost a staple in [a vendor’s] marketing and spin in the CRM business,” she says. “Once it starts I don’t know if you can afford not to fight back — you have to fight back.” 

Scavenging for the competition’s customers might be nothing new, but it seems to cluster, says China Martens, an enterprise software analyst with The 451 Group. “Last year, when we saw Entellium fall apart, there was suddenly a mad rush over those guys,” she says. (See Insight, December 2008, for more on the Entellium tale.) Martens says the economic slowdown is forcing companies to trim sales forces, cut back on sales performance management, and perhaps even re-evaluate CRM investments. “It might be a time to look again at what you’ve invested in,” she says. “Even though you might be cutting back on seats, you still might be paying too much.” 

Last year, NetSuite sought to attract new users — and ruffle Salesforce.com’s feathers—with a campaign cheekily called RenewForce. The on-demand CRM and enterprise resource planning vendor offered to save customers 50 percent on software costs if they switched from Salesforce.com. 

“It’s been quite successful,” says Mini Peiris, NetSuite’s vice president of product marketing. “We’ve had a significant number [of customers] switch — [in the] double digits,” she says. The company first considered a 30 percent discount, Peiris says, “[but] we felt like we really needed to sweeten the pot.” Neither RenewForce nor a more-recent switching campaign jokily called “Cash for Clunkers” is still active, but Peiris says she wouldn’t be surprised if NetSuite runs something similar in the future.

Online productivity-suite provider Zoho recently joined the poaching parade with its Zoho Zwitch program — promising not only cost savings for Salesforce.com customers, but free business evaluation and data migration as well. “In some cases,” adds Raju Vegesna, Zoho’s key evangelist, “there are customers under contract with Salesforce[.com] with six months pending and we’re willing to give them Zoho CRM licenses for free for [that] remaining time.” Both NetSuite and Zoho tout monthly subscription rates below the $65-per-user rate Salesforce.com charges on accounts with more than five users. 

McCabe says the real issue is why vendors are so focused on stealing business from their rivals. Are they having a hard time signing CRM newcomers? Martens, on the other hand, says this may just be a case of vendors seeking attention, letting customers know what they have and what they’re capable of. This might be especially true, she says, for NetSuite and Zoho—companies not solely known for their CRM products. 

Software-as-a-service, McCabe notes, makes swapping vendors less of a nightmare than it once was. “It does make it easier to switch — at least psychologically,” she says. “To switch from Salesforce to Zoho, you’re not going to have to deploy new software and configure it. The hidden cost is the user-adoption and training issue that you’ll have to go through all over again.” 

Martens points out that Salesforce.com users tend to say that they live within the Salesforce software. But once you get reps to use any CRM system, migrating to a completely new system might not be worth it — even if you’re saving money on each seat. “Think [of] the additional costs there in terms of integration,” she says. “How much work have you done to customize your system? That could be a sizeable issue.” At the end of the year you may have to negotiate again. And who knows? At that point you might have yet another vendor doing its best to convince you to come on over.  

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SIDEBAR: Sage Reseller Closes Shop — and Opens Up to Poachers

On July 6, the largest reseller of Sage solutions in North America suddenly shut down. The industry seemed blindsided at the time by the reversal of fortune at Dallas-based MIS Group—celebrated as Sage’s top revenue-earning channel partner for two years running, with nearly 3,000 customers — but Paul Johnson, Sage’s executive vice president of sales, reveals that Sage had been aware of MIS Group’s troubling financial situation for quite some time. 

“We had a plan in place for when this happened,” Johnson says. Sage reacted quickly — calling each of MIS’s 3,000 customers and placing them on a 30-day Sage phone-support plan. Sage also referred the newly orphaned customers to possible channel partners. “Our partner channel has been unbelievable in helping us align these customers,” Johnson says. “Our customers have been very positive and appreciative of Sage’s actions.” He adds that some MIS partners are now stepping up to become resellers. “It’s actually pretty reassuring to see the response we’ve gotten,” Johnson says. “You don’t want to see ‘a partner going out of business’ as a good thing, but we’re seeing a re-energized approach to customers that we haven’t had over the years.” 

Hurwitz + Associates partner Laurie McCabe calls this a mere blip in the road for Sage, and Johnson says that customers understand the difference between the shuttering of a partner and continued stability at Sage. In fact, he says, MIS-related income amounted to approximately one-tenth of 1 percent of Sage’s overall North American revenues.

Blip or no blip, for a competitor this is a prime opportunity to snag a few unsure customers. Microsoft, for example, has offered discount pricing and safe harbor to shield any MIS Group customers “concerned with the stability of the Sage Software Inc. channel.”  

Johnson says that Sage has no intention of responding to the noise from competitors. “We don’t respond to these competitive threats publicly because we don’t want to give them credence,” he says, “but we do want to respond back to our partner community and let them know what we are doing for them, and remind them how stable we are and what a tight-knit partnership we have with them…. When I hear [competitors] say our channels are unstable, or that Sage is unstable, it’s really kind of silly. We are very, very solid.” There are more than 3,000 partners in North America, he says, specializing in Sage’s 30 products. 

Competitive poaching, Johnson says, has always been an issue in this industry, but, quite frankly, he doesn’t see the needle moving in his rivals’ favor. “I’m not seeing it working,” he says. “And if you really peel back the onion, it sounds like Microsoft is a bit weak if they’re making these kinds of competitive offers.”  

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For the rest of the November 2009 issue of CRM magazine — a look back at the first 10 years of Salesforce.com — please click here.

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