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No Fear
Craig Conway stands firmly behind PeopleSoft and the CRM industry
For the rest of the June 2002 issue of CRM magazine please click here
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Craig Conway is a man on a mission, brimming with confidence at a time when many technology leaders appear to have their heads in the sand. The brash chief executive and president of PeopleSoft Inc. will tell you why the CRM market is the hottest and most exciting industry to be in, and why his company is in the best position to lead the charge. What about all the reports of poor customer satisfaction and failed CRM rollouts? Conway says 2002 will be different, a year in which the CRM industry will make the transition from adolescence to the beginning phases of maturity. What about Siebel Systems Inc. still having a commanding lead as the number one CRM provider and having the best brand recognition? Conway says the tide is turning and SAP is his real concern. OK, but PeopleSoft has to be looking over its shoulder now that Microsoft Corp., the ruthless market-share machine in so many other software categories, is entering the CRM arena with its own offering. Right? "I am not fearful," he says. Conway does have a right to be confident. The company is moving top customers over to its PeopleSoft 8 CRM platform, its financials are solid, and it is gaining share in what is still expected to be a high-growth industry. "CRM will continue to be a high-growth category in 2002," Conway says. "High growth doesn't mean the eighty or ninety percent growth levels of the past, but I still think it could grow at a fast pace. Twenty-five or thirty percent as an overall industry growth is very rapid growth. Most mature industries grow at four or five or six percent a year." PeopleSoft's first task is to continue migrating current Global customers to PeopleSoft 8, released last summer. And although the company still has a long way to go, it is making process. As of the beginning of April research firm Giga Information Group estimated that approximately 650 of PeopleSoft's 4,700 customers were live on PeopleSoft 8. That is expected to increase to 1,500 by the end of the year, with another 500 going live by the end of the first quarter of 2003. Although Giga points out that some current PeopleSoft customers are feeling pressured by the company to upgrade quickly or risk losing support for PeopleSoft 7, many other industry analysts do not see it that way.
"PeopleSoft is making good progress and becoming more credible," says Charles Phillips, managing director at investment banking giant Morgan Stanley. "Our checks through the first quarter with a variety of market research sources and field contracts indicated that the climate was challenging, but that PeopleSoft appeared to be executing well, as they did throughout 2001," says Jim Mendelson, an analyst at SoundView Technology Group, an investment banking firm. Indeed, during fiscal 2001 PeopleSoft was on a roll despite the floundering U.S. economy and the trouble most high-tech companies were experiencing. The company's revenue rose more than 19 percent, to $2.1 billion from just above $1.7 billion, in fiscal 2000. Licensing fees climbed a whopping 30 percent, to $645.4 million for the year, compared with $496 million the year before. Net income for 2001 hit $189.3 million, up considerably from $149.2 million in 2000. Going forward, analysts believe PeopleSoft's revenue will inch up, hindered slightly by the continued tough times in the tech sector in the first half of the year, and then will begin to experience healthy growth for the second half of 2002. Revenues for 2003 are expected to rise nearly 20 percent, to approximately $2.4 billion. Regardless of this long-term view, the market around CRM is still extremely volatile. The difficult economic environment was felt when PeopleSoft unveiled it would miss its revenue targets for its fiscal first quarter by as much as $30 million. As a result investors punished the stock, sending it down more than 30 percent in one day of trading, to the $25-a-share range from more than $37 a share. The company ended up reporting $483.3 million in overall sales for the quarter, down 6 percent from $514.2 million in the year-earlier period. And although its licensing revenue also dropped, PeopleSoft did meet Wall Street's earnings estimates. While most analysts are looking past the first quarter miss and said they still support the company and the stock for the long term, it does demonstrate the fragile technology environment and the lingering effect all the bad publicity surrounding CRM failure rates continues to have on the market. This is not lost on Conway, who says CRM's image still needs a good polishing. "[CRM] has been a category that had some disappointment associated with it," Conway says. He does not shoulder the entire blame for this stigma, nor does he completely fault the many customers who had overblown expectations. While many vendors overpromised what their CRM applications could accomplish and then failed to deliver the implementation either on time or on budget or both, many corporations also did not keep their end of the bargain and did not take the time needed to evaluate the solution before committing, did not set realistic goals, and did not follow up with appropriate employee training, he says. However, all that will change this year, Conway predicts, as customers and CRM suppliers spend more time in the up-front evaluation phase of a CRM project, and set more realistic expectations before embarking on an implementation strategy. "I believe the CRM industry has reached the end of its provocative, brash, teenage years and it is going to mature in 2002 into a much stronger and quite frankly a more integral part of companies' infrastructure," Conway says. "With companies counting on the CRM market to responsibly improve their business processes, they will adopt it at a much greater level then they ever did historically. By the end of 2002 people will be so far past the whole baggage that comes along with failed implementations." But it is far from a slam-dunk for the perception surrounding the CRM industry to change and for PeopleSoft to lead the metamorphosis, some industry analysts say. "PeopleSoft has done a good job of delivering in-depth functionality across the traditional CRM footprint such as sales force automation, campaign management elements, and so on," says Joanie Ruffo, research director at AMR. "Its objective now is to work on breadth of applications within its CRM offering." That and winning accounts outside its traditional customer base are two main challenges for PeopleSoft, Ruffo says. One way PeopleSoft will do this is by targeting mid-market enterprise businesses, Conway says. Along with Siebel and other CRM vendors, PeopleSoft is looking to tap into the vast mid-market space, where CRM penetration is small. "It's an enormous market with a tremendous amount of growth. And research still points to the vast majority of companies having never licensed any customer management applications," Conway says. In fact, according to some research about 10 percent of medium businesses currently run CRM applications, but approximately 75 percent have budgeted for the technology. Microsoft realized this and is in the process of releasing its own CRM offering to target this market later this year. However, Conway believes that PeopleSoft, because of PeopleSoft 8 and its Web-based architecture, is in prime position to not only continue to gain steam in global accounts, but also move downstream into medium-size business enterprises, regardless of Microsoft's intentions. Selling a high-transaction and low-cost application through a third-party support channel is how Microsoft has built its dynasty, Conway says, adding that selling CRM into corporate enterprises is another ballgame altogether. "It is far less likely that Microsoft will staff to gear up to sell large enterprises than it is that PeopleSoft and SAP will go after the mid-market. I think they will see us in their traditional space before we see them in ours." Again, Conway's strong words reveal his confidence. We will see if PeopleSoft will be able to back this up with action. - CRM
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