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MidMarket CRM: Leveling the Paying Field
Midsize companies are turning to sales automation to help them compete, and that's driving a boom in software designed for the mid tier.
For the rest of the August 1999 issue of CRM magazine please click here
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iCat Corp. had a tiger by the tail. As the developer of a third-generation e-commerce software product, the small but growing company was poised to grab its share of the consumer online shopping market, expected to grow from $530 million in 1996 to $7.2 billion by 2000.

The problem: With rapid growth, iCat soon found that the contact management program it was using to track customer information was straining to keep up with its 35,000 records. Additionally, the contact manager didn't allow iCat to use the recorded data to create much-needed reports for analyzing the sales pipeline, its win/loss ratios or factors surrounding each business deal.

"Contact managers are easy to use and inexpensive. But we needed to be able to add new data and views to reflect our sales processes and to better associate customers with channel partners," says Jody Wally, iCat account manager.

At the same time, with only 150 employees, the company wasn't a candidate for a high-end CRM system. "We couldn't afford a sales automation system that would take a year or more to implement," says Jack story, IS manager.

After a six-month evaluation of sales force automation systems, iCat selected a solution from SalesLogix, which caters to the growing mid-tier CRM market.

With help from an integrator, the company performed initial customizations, imported thousands of customer records, trained 25 salespeople and rolled out the product in just one week. Today, more than 50 iCat professionals in sales, marketing and business development are using the system.

Like its larger competitors, iCat has implemented automated sales processes to effectively capture and record required data on every prospect, customer and channel partner. The sales team is using that data to modify sales processes to better qualify, forecast and close sales leads. And customized reports help management evaluate customer wins/losses, new market opportunities and resource allocation. For the first time, iCat's sales team can easily and accurately track all sales opportunities in the pipeline by current status, the size of the deal and when they are predicted to close eliminating the time spent preparing manual forecasts.

Midmarket Heats Up
SalesLogix and other midmarket CRM vendors have their own tiger by the tail as demand booms for software that offers midsized companies more power than off-the-shelf contact managers without the high cost and extended implementation time of traditional high-end CRM systems.

"Players in this market segment are seeing phenomenal growth today," notes Donovan Gow, a CRM research analyst with Aberdeen Group. "Demand in the midmarket," he says, "is absolutely exploding." Midmarket CRM vendors are experiencing growth in the 60- to 70-percent range, on average, for year-on-year revenues over last quarter.

Want some other signs that this market segment which consists of midsize companies (roughly $25 million to $1 billion in revenues) and midsize divisions of large firms has taken off? Consider these indicators:

  • Siebel Systems, known from the get-go for its massive implementations in Fortune 500 companies, has recently thrust itself upon the midmarket and plans to give incumbents a run for their money. In February of this year Siebel introduced two products Siebel Sales, a contact manager that customers can download for free from the company's Web site, and Siebel Sales for Workgroups, which is a tailored version designed for small- to medium-sized businesses.

    "We are absolutely pursuing the midmarket and we are doing it aggressively," says Paul Rosenblum, Siebel's vice president of product development. "In fact, that segment of our business is growing faster than the rest of our business, though at this point, it's doing so largely because it's newer and started from a smaller size."

  • Long-time ERP players like Oracle are turning a hungry eye to the CRM midmarket. "We introduced Oracle CRM over a year ago," attests Lisa Arthur, Oracle's senior director of product marketing. "Already over 200 companies are using it, and about half of them are midsize. Down the road, we plan to pursue this market more aggressively, and we will definitely put pressure on existing midmarket players."

  • Big Five consulting firm KPMG Peat Marwick, which until recently wouldn't have given a thought to consulting engagements in the mid-tier, now has a formal midmarket strategy in place. In fact, the firm has partnered with Microsoft, Hewlett Packard and Pivotal to introduce Enterprise 360 a consortium geared at providing all aspects of a CRM solution to midmarket companies; to date, the virtual consortium has 18 customers. It's rumored that KPMG adopted this strategy due to its faltering relationship with Siebel, but Kevin McManus, a partner in KPMG's National CRM Solutions Practice, says otherwise. "We saw a tremendous opportunity in terms of offering a suite to this marketplace," he claims. "Additionally, since the Fortune 500 consists of 500 companies, we realized that saturation would occur on the high end much sooner than it would in the midmarket. Given the sheer size of the midmarket, the dollar value is much greater there than it is for the Fortune 500."

What's Driving the Growth?
"We no longer have to evangelize to companies about why they should implement these products," says Bob Runge, vice president of marketing at Pivotal Software. "The gotta-have-it-now-at-any-price mentality has kicked in, and midmarket vendors are beginning to reap the benefits in a big way."

Pivotal's numbers, like those of other mid-tier vendors, paint a telling picture. In less than two years, the company has grown from a 30-person organization to one that employs over 250 people. Year-on-year revenues for the most recent quarter grew 70 percent, and the company's user base grew by more than 8,000 in the past quarter alone.

What caused the market to suddenly take off? Vendors and analysts are quick to note that this growth surge wasn't an overnight phenomenon but rather resulted from the gradual convergence of several factors.

  • The emergence of the Internet as a serious business platform. "Perhaps more so than anything else," says Runge, "the Internet has been instrumental in our recent growth." So instrumental, in fact, that Pivotal expects sales of eRelationship, its recently released Internet offering, to surpass those for its client/server-based system within the next six months. By enabling companies to extend their arms to partners and customers, the Web plays an increasingly important role in CRM purchase decisions. Some vendors, such as Pivotal, believe the Web is the platform of the future and are building out Web-based versions of their products from the ground up. Midmarket player Multiactive has introduced a new e-business solution, Entice!, for midsize companies. Meanwhile, others are racing to "Web-enable" their products as quickly as possible. "Either way," says GartnerGroup's Michael Maoz, "companies are trying to respond to the Internet in some fashion. Their need to do so, coupled with the many ways in which the Web can support CRM, is one factor that's spurring growth in the CRM mid market right now."

  • Growing competition. "The competition's heating up," notes KPMG's Kevin McManus. "As midsize companies see their competitors forming strategic alliances, implementing sales and marketing automation tools and harnessing Internet technologies," he continues, "they know they've got to do even more to differentiate themselves." Increasingly, the degree to which these companies successfully manage client relationships is the big differentiator. "That's very true in our business," agrees Kathleen McGrorty, vice president of the Decision Support Group for Bank of America's private-bank division. "We're always watching our competition, and to get a leg up on them, we must really understand who our clients are. For us, that means having client information unified in a database that can be accessed by anyone in the private bank and from anywhere in the U.S."

    Access to such information has become increasingly critical, as customers more and more demand that companies maintain a corporate memory across the extended enterprise. "If I'm your client and I contact you through one department or channel," explains Gartner's Maoz, "you'd better know who I am when I later contact you through another department." In companies that fail to effectively share such information across channels, as was the case with a well-known computer retailer last Christmas, clients may defect by the droves.

  • A slowdown on the ERP front. ERP businesses are beginning to peter out for a couple of reasons. One is market saturation. The other is that businesses now question how much more they can shave off their manufacturing costs. "These costs may constitute ten percent or less of a typical company's overall budget," points out Maoz, whereas sales and marketing may consume up to 40 percent. "So if I go to my shareholders and tell them I can either cut one point off manufacturing or four points off sales and marketing," he contends, "which initiative do you think they will choose?" For many companies, CRM represents the largest pocket of untapped savings, and as such, it's stealing the limelight from ERP. "Just a year ago," notes Jeff Fisher, vice president of product development at Saratoga, "we had a hard time getting the attention of consulting firms because they were so busy doing ERP implementations. Now they're calling us and asking to help implement our solutions."

  • The herd mentality has kicked in. "Companies are opening up trade publications and reading that their competitors have just implemented a CRM product," asserts Pivotal's Bob Runge. "Then they're asking, Why aren't we doing this too?" Indeed, as more and more midmarket firms jump on the CRM bandwagon, the pressure's on to conform. Bank of America's Kathleen McGrorty agrees. "The buzz is out there," she says. "You've got to know your client to manage your client, and to do all this on a global basis. Our competitors were implementing CRM products and we needed to do so as well to stay competitive. That's one reason why we implemented Saratoga's Avenue."

  • Desire to unify everyone under one system and/or move forward to the next generation of CRM. A salesperson buys a contact manager, tells several other salespeople, and soon they're all buying contact managers. "It's like rogue adaptation of a shrink-wrapped product," laughs Bob Runge. "One day the sales manager wakes up and realizes half the sales force is using ACT! or GoldMine." In these cases, executives may feel it's a better time than ever to unify everyone under one system. After all, the technology has improved, interfaces are friendlier and the horror stories are somewhat less commonplace than in the past. Additionally, there are companies out there that are simply ready to move on to something more sophisticated. "Today's midmarket buyers are more knowledgeable than ever before," says Ren? White, Saratoga's vice president of marketing. "They've already used contact managers, in-house systems or less robust products, so they know what they're looking for. Instead of asking general questions about what CRM products do, they're nailing down details about scalability, synchronization, integration with other departments, and the like."

  • Other factors: Siebelization, reduced hardware costs and the winding down of Y2K efforts. Other factors may or may not have played a prominent role in the midmarket's embracing of CRM technology, depending on who you talk to. Through its gargantuan marketing efforts, for instance, big enterprise player Siebel has done a tremendous job of increasing the business world's awareness of CRM technology. "Siebel-branding has created interest across most all segments of the market," says Bob Runge, "and we're all benefiting from that." Likewise, the fact that hardware costs have come down in recent years certainly hasn't hurt things. "Computing has gotten so much cheaper," says Tim Sullivan, senior consultant at OnTarget, an Atlanta-based sales methodology firm. "The cost of laptops has come way down, meaning the cost per seat at least on the hardware side has come down as well. For many companies, that alone may make CRM more affordable."

    And while the jury's still out on this one, some vendors and analysts feel that the winding down of Y2K efforts has helped bolster CRM sales across all areas of the market. "By now," explains KPMG's McManus, "most companies have implemented their Y2K plans, so they're beginning to allocate resources to other areas, including CRM."

And on the Battlefront...
What lies ahead? For starters, a potentially prosperous few years for many midmarket players. "We're predicting an explosive marketplace for the next three or four years," proclaims Saratoga's White. "Specifically, we're projecting 100 percent growth for 1999 and 2000 and continued strong growth past that. Beyond the next few years, however, we're not making predictions yet."

For industry onlookers, what may prove more interesting than growth is the impending battle, one that pits mid-tier incumbents against high-end newcomers to the midmarket. "The mid-tier marketplace is a nice, juicy, fast-growing one," says White, and it's got big guys like Siebel salivating.

Pivotal's Runge insists he's not concerned. "Siebel's entering the midmarket is like trying to drive an aircraft carrier up a salmon creek. They've been focused on the Fortune 50 and on the big-enterprise way of doing business, and that's a different world entirely from the way the midmarket operates. We've started seeing the big guys Aurum, Vantive, Clarify and Siebel coming down into account opportunities that are ridiculous for them," he continues, "and we're pretty much able to sell by saying wrong product, wrong price and wrong distribution channels when we encounter them. Our midmarket competitors are much more robust in their ability to compete. And honestly, I see companies like Oracle or Baan that can give product away because they have so many existing customer relationships as being the more dangerous contenders in this market segment."

"For midmarket companies," says Gartners' Michael Maoz, "Siebel does not stand out as the vendor of choice. Midsize companies need something flexible and easy to deploy. They also need someone regional who can service, support and train them, and that is not the Siebel model. Siebel operates on the external-service-provider-driven implementation model. They don't have the regional people in place to service and support clients, and their price points are not compelling. They are still geared toward 500 licenses and up, and the average midsize firm only wants 50 to 250 licenses on a good day."

If these huge firms are so mismatched for the midmarket, why are they seriously pursuing it? According to Aberdeen's Donovan Gow, enterprise vendors aren't so much concerned about high-end market saturation in the short term as they are about increasing competition. Major ERP players such as Oracle and SAP are beginning to feel the earnings crunch, and in trying to answer "What next?" they're looking to CRM as the potential answer.

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