Running Out of Gas?

What an exciting CRM software race it's been. First the high-powered competitors--Siebel Systems Inc. and PeopleSoft Inc., Oracle Corp. and SAP AG, Onyx Software Corp. and Pivotal Corp., SalesLogix and FrontRange (GoldMine)--roar off the starting line and break away from the pack. Then Siebel pulls ahead, threatening to lap the field. But competitors start catching up, and now they're within striking distance. It really is turning into a race, after all, despite some premature "we won" talk by several grandiose vendor execs, subsequently echoed by careless analysts who do their research by reading press releases. Now it's down to the final laps, and the jockeying for position grows more and more intense. Spinouts and wall slams have narrowed the field substantially, and several among the final contenders are looking less than road-worthy. We can still see Clarify, which ran out of gas before the finish; E.piphany Inc., which started too late to catch up; and Remedy Corp., which inexplicably coasted onto the infield just when it started to move up. Now that the finish line is in sight, everyone in the stands should be glued to their seats. Instead, most of the audience is leaving--without waiting for the climactic moment. Where are all these CRM software customers going? Many are leaving to view a different race. They're more interested in the Grand Prix--type competition, where precision driving and adaptability to the curves of the track are taking precedence over raw power. In other words, they wanted vendors that will adapt to their needs, not push overstuffed products laden with unnecessary features. Others are leaving because no matter who wins, they can't afford to pay the winner's fee to run on their track--among these many middle-market customers for whom motocross is more their speed. And yet others are leaving because they don't care who wins this competitive race--or any competitive race. They prefer an unknown team that will get to know them in ways the stars of the competitive circuit never would. Whatever their reasons, these CRM customers are departing in search of "something different." This exodus is redefining the CRM application software market heretofore defined by leading vendors. To make matters worse for these high-powered competitors, this customer migration has been misattributed to the bad economy. It's always the economy's fault, until the economy starts picking up but business doesn't--at least not nearly as fast. Wayward audience notwithstanding, FrontRange (GoldMine), Onyx, Oracle, PeopleSoft, Pivotal, SalesLogix, SAP, and Siebel made it all the way through this race. All of them now wondering, "Where's our glory?" And, "Where's all the damn prize money?" That this race for CRM software market dominance would end with customers leaving the track in search of something better should not be surprising. When sellers stop listening to buyers and start patronizing or mistreating them, customers walk. Only today, with chronic oversupply in most business sectors giving customers the power of choice, if firms disregard customers they walk much sooner, much faster, and much farther. What are CRM application customers buying? Customers favor applications designed to fit their business strategies, their workflow, and their user-sophistication level, and that fit into their native systems environment. And since no two companies are alike--not even two companies in the same industry--adaptability is what more and more customers are after, not shovel-loads of prepackaged functionality, but small building blocks and big tool sets. In fact, according to the recent customer satisfaction study, "Multi-function CRM Software: How good is it?", which I coconducted with David Mangen and Bob Thompson, 91 percent of respondents want a solution that "meets our CRM needs," 82 percent prefer an application that is adaptable to their business processes, 73 percent look for a full-featured software, and 62 percent want a vendor with an excellent reputation. It seems, then, that this is certainly not a good time to be relying on breadth of prebuilt functionality to entice new customers. What's more, the system had better fit CRM software customers' budgets, because they are not about to pay for functionality they'll never use and that will increase customization costs. Only ease-of-implementation and customer focus (how ironic in the CRM industry) drew lower customer satisfaction ratings than pricing in the study. And the dissatisfaction was almost as high with value delivered as with absolute cost, reflecting customer opinion that they're paying too much and not getting the benefit of their high spending. "Companies that stop and do their business analysis, which everyone knows they need to do before even thinking about software, will often find themselves with a much better fit from the 'new guys' in CRM," says veteran CRM consultant and former analyst Chris Selland, now of Reservoir Partners. So where else than to the old standbys can CRM software customers go to have it their way? To a mix of hot new players and newly popular, formerly second-tier players that are revving their engines for the next leg of the CRM race. There are a number of companies crowding this new starting line, but four companies stand to gain the most from the changes in CRM software buying patterns and lead the field. J.D. Edwards: Having purchased from the former YOUcentric a CRM application architecture that ranks at the very high-end of the adaptability scale, then leveraging it with a common data model that reduces the need to replicate front-office and back-office data all over the enterprise, J.D. Edwards has successfully launched its new CRM application in the depths of our mild recession. Plus, J.D. Edwards' focus on below-enterprise-size implementations positions it midstream in the customer migration. It's hard to imagine enterprise system sellers, including Oracle, PeopleSoft, SAP, or Siebel, dropping their prices dramatically below current levels without first taking a meat ax to their systems--and risking losing customers. J.D. Edwards' appeal is not limited to its previous back-office implementation sites. "Seventy percent of J.D. Edwards' CRM implementations are to new customers," says Joel Reed, J.D. Edwards' director of CRM product marketing. Optima Technologies: Optima has complemented its core CRM application, ExSellence, with a bevy of intensive functionalities that work both within and without the core system. Industry analyst Jim Dickie of Insight Technology Group describes it as a shift from the "mile-wide but only a foot-deep capability" of the past--which is being replaced in part by "tools that are only a foot wide, addressing just a single process or subprocess of the CRM challenge." The combination of basic tools together with drill-down capabilities to support certain narrowly defined requirements, gives Optima a differentiated profile in a largely undifferentiated market. With an architecture bearing an uncanny resemblance conceptually to J.D. Edwards' (although developed earlier and independently), Optima is moving from the periphery of the market to the sweet spot. Salesforce.com: Starting with a base of affordable sales force automation functionality, in the mid-2002 this application expanded to include customer service and marketing operations functionality. Scalability will also increase, and functionality for disconnected remote users will come online, claims Cary Fulbright, Salesforce.com's vice president of marketing. Although as an ASP Salesforce.com's application will never offer the adaptability of customer-hosted apps, many small- to midsize businesses (SMBs) with relatively straightforward selling processes find it to their liking. And according to Jupiter Media Metrix, "Spending on CRM software by SMBs will reach $651 million, making up 19 percent of the market by 2006." Nice, when the old standby systems are too cumbersome and too expensive for this niche. Microsoft: What's the first thing a CRM consultant or integrator sees when getting out into the field? Nefarious Excel and Access programs performing critical tasks, but forming islands of data. Hey, fully tie the Outlook calendar to contact records, stick a relational database under the hood and bridge the information islands over the Web and through remote synchronization for disconnected users, and many SMBs have the technology support they need to overcome constraints in dealing effectively with customers. According to CRM analysts at Aberdeen Group, "Microsoft is redefining the entire CRM and e-business market, and it is happening faster than most companies recognize." A bit extreme? Perhaps. But tone that statement down by even 50 percent, and you still get the feeling that some long-time CRM players are racing on a slippery track. And how are the old standbys reacting to all the new competition? Insight's Dickie describes them as "acting like deer in headlights--changing their strategies every week or not having game plans at all, while newer and more focused players are still making sales." But lest we think the traditional industry players are totally asleep at the wheel, even Oracle is now talking about leaving the bells and whistles race and going for extensibility instead. And if that hot rod can change gears, this whole market could be in for one wild race. CRM consultant Dick Lee is the author of The Customer Relationship Management Survival Guide and a set of implementers' handbooks titled Self-guided CRM. In addition to consulting and writing, he speaks internationally on CRM topics. Contact him at dlee@h-ym.com