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The 2004 Market Leaders
The time has come once again for CRM magazine to reward excellence and achievement among vendors in the CRM industry. CRM vendors have individually and collectively worked to build confidence in the discipline, and those efforts are paying off. According to AMR Research, companies are still making modest-but-measurable increases in their spending on customer management tools and strategies, to the tune of an additional $600 million in spending expected for 2004. Interest is strongest among midmarket and SMB firms, which we classify as those companies under $1 billion and under $100 million in annual revenues, respectively. But there was plenty to stir things up this year. Read on to see what companies prevailed from 2003, and how others are leaving an indelible mark on the industry.
For the rest of the September 2004 issue of CRM magazine please click here
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Enterprise Suite CRM
The Market
A new competitive landscape emerged among the largest deployments of CRM this past year. Changes in users' buying patterns have the enterprise CRM vendors looking for new ways to maximize growth and profitability. One approach these vendors are increasingly using is to take aim at each other in an attempt to win over existing customers. The maturation of the enterprise CRM market, says Chris Selland, vice president of sell-side research at Aberdeen Group, means "these days, the only deals you win are the ones you take away from other guys."

Another paradigm shift over the past year is the growth of hosted CRM technologies. Many of the market leaders have expanded or improved their offerings in this area, often focusing on embedded analytics, integration, and ease-of-use--the factors that large-scale CRM users sought the most. "End-users are looking to consolidate and not have one or two point solution vendors," Selland says. "But they don't want to trade off and use a second-tier product just because it's part of their suite vendor." This year's market-leading vendors recognized these developing trends and tried to capitalize on them.

CLICK HERE to view the CRM Market Leaders chart.

The Leaders
Among the leading enterprise vendors, Amdocs is the one most heavily focused on primarily one key vertical: telecommunications. But the company is relying on its ClarifyCRM division to extend its reach to other appropriate verticals. This is one reason for its solid 15 percent revenue growth in the CRM space, which helped turn a minor overall 2002 loss into a booming $168 million profit in 2003. Coupled with exceptionally strong customer satisfaction marks (which explain a nearly 100 percent customer retention rate among ClarifyCRM users), and the continued absorption of last year's acquisition of Xchange, Amdocs' big push in functionality and partnerships helped the company stay far ahead of the midmarket vendors striving to gain entrance to the enterprise market, and helped it keep pace with its enterprise-level peers.

Although busy with its hostile takeover bid for PeopleSoft, Oracle managed to stay in step with its enterprise-level competitors. Ranked the lowest among the Market Leaders in terms of customer satisfaction ratings, Oracle scored points in terms of functionality--in part because the company addressed two of the industry's key concerns: data integration and hosted CRM. The company met the trend toward data integration with its Customer Data Hub, uniting data from front- and back-office systems to provide a single complete source of customer information. Oracle also repositioned and expanded its hosted offering, giving customers the option of on-premises managed services.

With 61 percent revenue growth, PeopleSoft seems at first glance to be the leader of the pack. But revenues hardly budged at all in the enterprise arena, as most of the growth came from the midmarket through the acquisition of J.D. Edwards. What kept the company a Market Leader this year were its development efforts and its strong showing in CRM's surveys of both functionality and customer satisfaction. The company's 8.9 release kept expectations high all year--and PeopleSoft attracted attention by beating the drum for lower total cost of ownership and increased ease-of-integration. The selection of George Ahn, a former Tibco executive, to head the CRM division underscores the company's dedication to integration, a perennial enterprise concern.

While observers openly dispute the true nature of SAP's CRM growth, AMR Research says the German giant pulled into a dead heat with Siebel Systems for the revenue-share lead in the CRM market last year, at 13 percent each. SAP also reaped a massive paper windfall thanks to an exchange rate that puffed up its Euro-based results. Still, much of the credit for the company's ever-expanding reach in the CRM space goes to a 2003 mySAP 4.0 release that greatly improved on the previous (and much-maligned) user interface. The company made a major push into CRM through upgrade initiatives and added trade promotion management and analytics functionality, all the while blatantly capitalizing on the uncertainty surrounding Siebel and PeopleSoft's future.

Enterprise Suite CRM

The Winner
Siebel Systems, while maintaining its position as CRM's 800-pound gorilla, weathered a steep 17 percent decline in revenue, according to AMR Research, as well as the ignominy of losing its clear hold on the revenue-share lead in the space. Meanwhile, company founder Tom Siebel surprised everyone by suddenly stepping down as CEO, handing the position to former IBM executive J. Michael Lawrie. But the release of Siebel 7.7 brought a renewed focus on sales, customer service, and marketing activities, thanks in large part to the strength of recently upgraded Siebel Analytics. Customers and analysts alike were also impressed with the technological leaps forward brought by acquisitions of Motiva (incentive management), Ineto Services (contact center management), and Eontec (retail banking solutions), among others. The most notable purchase, the acquisition of UpShot (and its integration into Siebel OnDemand), seemed to embody a year of positive redirection. "Everything that Siebel did is pointing toward ambitions in the on-demand space," says Denis Pombriant, managing principal at Beagle Research Group. --Joshua Weinberger

ENTERPRISE SUITE CRM ONES TO WATCH
There's nothing quite like pocketing about $100 million to get a little attention. Salesforce.com's initial public offering ended a year of big moves and big successes for the software-as-a-service firm. The company broke into AMR Research's top-20 list of vendors with the highest CRM revenue, and released new versions of its flagship product and of sforce, its platform for developers. Founder and CEO Marc Benioff suffered a black eye at the hands of the SEC, as the company's IPO was delayed three times. Even after all that the company made a notable splash in its debut, pricing above its target and experiencing one of the best first-day performances of the year.

"Salesforce.com has grown to be a very big influence in the industry, but their footprint isn't very big," Selland says. "They're still nowhere near the functionality of SAP or Siebel, but they're getting there." Even so, the company is helping to make on-demand CRM palatable to the enterprise space--and is forcing its enterprise rivals to reinvent their hosted and on-demand offerings and pricing--with such wins as SunTrust Banks, ADP, Corporate Express, and most recently, Cisco Systems. --J.W.

Midmarket Suite CRM
The Market
Midmarket companies, generally cited as being between $100 million and $1 billion in revenues, have long been considered the ultimate opportunity for CRM vendors. Midmarket companies have problems large enough to require heavy-duty solutions, budgets big enough to accommodate the projects, and growth opportunities significant enough to warrant a major CRM investment. To capture this lucrative market vendors are pulling out the stops. Be it enterprise-grade functionality for pennies on the dollar or on-demand solutions robust enough to run a nationwide company, midmarket CRM is where one can find the most innovation--and the most unpredictable change. The war for the midmarket is raging, and some of its brightest names are taking hits.

The Leaders
Microsoft's CRM radar blip turned into a legitimate market force this year, once clients began signing on in droves. With at least 1,000 customer installs, Microsoft's CRM strategy cannot be seen as mere dabbling. The company cut through a crowded world of Outlook-compatible products, leveraging an obvious advantage with its own code to leapfrog many Outlook-based CRM competitors. "There's Outlook integration, and then there's Outlook integration--most just have a batch process that runs in the background or every night," says Laura Preslan, CRM research director at AMR Research. Combined with a highly motivated and aggressive reseller base, Microsoft has been able to take a great deal of midmarket revenue in a short period of time, and not just among smaller clients. "We're getting user inquiries for companies that are looking at MS CRM as an enterprisewide solution," Preslan says.

Not all is rosy from Redmond, however, and MS CRM Version 2 is being closely watched on how it will address some of the limitations in Version 1--which sold very well, but has not earned universal applause. Our expert panel rated Microsoft at the bottom of the barrel for reputation for customer satisfaction and depth of functionality. "They shipped a low-function, low-flexibility product to a reseller base that wanted to customize and add value on top," says Erin Kinikin, vice president at Forrester Research. Still, Microsoft makes the CRM magazine leaderboard on the strength of extremely high year-over-year revenue growth (nearly doubling its CRM income, the best performance among major midmarket players) and a strong bottom line for its CRM business.

PeopleSoft joins the midmarket leaders this year largely on the strength of its J.D. Edwards acquisition and higher-than-average analyst ratings. Added to PeopleSoft's own midmarket presence in selling joint CRM and ERP/HR solutions, J.D. Edwards (now called PeopleSoft EnterpriseOne) provides the company with a significantly larger midmarket presence than it had enjoyed in past years. In fact, AMR Research ranks PeopleSoft as now having the highest overall number of CRM users.

"J.D. Edwards is essentially a high midmarket play in both the front office and back office," says Joe Outlaw, president of Outlaw Research. "When J.D. Edwards first bought YouCentric...less than five percent of [J.D. Edwards] customers had any sort of CRM at all, and [J.D. Edwards was] hoping that it would have a ready product to sell those people. I wouldn't doubt if [PeopleSoft was] doing fairly well with that built-in customer base."

Although Salesforce.com currently has smaller annual midmarket revenues than some of its rivals, strong growth and high marks for satisfaction edge the on-demand specialist into the midmarket leader category this year. While average customer size is still well under 20 seats, like Microsoft the company has secured some significant business from major players, and that in turn has boosted confidence from the midmarket. "Some of the largest companies in the world are running Salesforce: Honeywell, SunTrust...[these are] huge clients with thousands of agents running the solution," Preslan says. The company's sforce integration platform is getting enterprise attention, but Preslan believes the new Studio capability, making it easier for companies to customize the look, feel, and functionality of their Salesforce.com deployment, is the real jewel for midmarket customers.

SAP is the most surprising participant on the midmarket leaderboard. Although only a fraction of SAP's CRM revenues are attributed to midmarket clients, its growing stake in CRM business means it must be taken seriously. Market share reports from CSO Insights indicate that SAP is winning 10 percent of sales-oriented deals in the midmarket, while AMR Research credits SAP with 13 percent of the overall customer management space. SAP's focus is expected to remain the larger enterprise, but with the muscle and back-office resources it commands, the ripple effects are clearly felt in the midmarket.

MidMarket Suite CRM

The Winner
Some in the industry deride Siebel Systems' oft-reinvented midmarket strategy as merely a ploy to get in the front door of smaller firms to upsell them to Siebel's full enterprise suite. (Once known as the Mid-Market Edition, the vendor's main offering is now called Siebel Professional.) Siebel answered those intimations decisively with the acquisition and ongoing integration of UpShot into Siebel CRM OnDemand--and despite shrinking year-over-year revenues, Siebel has staked a solid claim to the midmarket vanguard.

Even with a clear minority of its revenues coming from the midmarket, Siebel does substantial trade with midsize enterprises--more than many of its midmarket peers put together--owing to sales of OnDemand, its midmarket suite, and its core Siebel Enterprise product. Siebel has clearly set its sights on a midmarket looking to buy capabilities that were once considered out of reach, and by any name, its offerings will be on many RFPs from the very same mid-tier companies the CRM industry expects will provide strong growth in coming years. In the midmarket as in the top-tier enterprise, Siebel is on everyone's mind. --Jason Compton

MIDMARKET SUITE CRM ONES TO WATCH
This year's midmarket leaders list is perhaps more remarkable for the names that are not on it than for those that are. Last year Onyx Software was CRM magazine's midmarket leader, with Pivotal placing fifth. This year neither one ranked in our top five. Both companies were once virtually synonymous with midmarket CRM. But with downward pressure from enterprise CRM vendors and crowding from aggressive on-demand players, both vendors have faced significant challenges. These two companies have undergone reorganizations: Pivotal was acquired by CDC Software, which recently named Divesh Sisodraker the new president and CEO of the unit; Onyx founder Brent Frei stepped down as CEO to make way for Lucent veteran Janice Anderson. Although both have significant installed customer bases providing maintenance revenues, "new license sales have been dismal," Kinikin says.

Kinikin also thinks that the rough waters have hurt the credibility of the fallen leaders. "The midmarket wants a five-year decision, and it's awfully hard to look out five years and assume that Onyx is really going to be around that long," she says. So, our eyes are on both Onyx and Pivotal to regroup, perhaps to reinvent in 2005, and to reclaim a slice of the pie. --J.C.

CATEGORIES AND CRITERIA
CRM magazine has significantly expanded the range of Market Leaders categories from years past. Recognizing the strong growth in demand among smaller companies, this year the Market Leaders microscope looks not only at enterprise and midmarket CRM specialists, but SMB players and sales force automation providers as well. Marketing performance management and data quality vendors are also included for the first time. Recognition for contact center outsourcing excellence moves to our Service Leader awards.

We've named one winner and four leaders (listed alphabetically) in each category using a proprietary selection formula. Roughly one half of the rating is based on a composite score of overall CRM revenues and year-over-year revenue growth, while the remainder is derived from market share position and analyst ratings of reputation for customer satisfaction and depth of functionality. We've also cited companies in each category worth watching for their potential to shake up their respective market next year.

SMB Suite CRM
The Market
The small business CRM space has been flooded with functionality at affordable price points, and integrators and customers alike can't be blamed for shaking their heads and working out just what their options are. Business as usual was rocked by the arrival of Microsoft last year, which--at least temporarily--shifted a great deal of attention onto the software giant's own Outlook-driven CRM package. "All the resellers started drinking the Microsoft Kool-Aid," says Jim Dickie, a partner with CSO Insights. Meanwhile, key on-demand players expanded beyond basic contact management functionality to become serious contenders against the traditional packaged suite vendors that cater to smaller business. And as verticalization and right-size applications continue to grow in popularity, larger CRM leaders are doing their best to nudge those that cater specifically to smaller business into niche roles.

The Leaders
Microsoft, by its dominating presence and user adoption, is a bona fide SMB leader in addition to its midmarket standing. Growth in Microsoft's CRM business is extremely strong, helped both by its enormous fleet of resellers and its relatively recent launch as compared to its competitors. While a clear leader, and despite the promise of easy, powerful Outlook integration, not all are convinced that Microsoft is an ideal solution for SMBs, due to hefty server requirements. "There's a lot of Microsoft infrastructure you have to install before you can even begin with MS CRM," says Erin Kinikin, vice president at Forrester Research. However, Laura Preslan, CRM research director at AMR Research, says that Microsoft's strong integration is leading to record user adoption rates.

From humble beginnings as NetLedger, an on-demand alternative to small business accounting software, NetSuite has grown into a legitimate CRM contender. Although its CRM functionality is not as deep as some established players, it has enjoyed explosive growth among customers seeking sales and back-end integration capabilities. The lure of NetSuite is simple: run essentially all business functions, front and back end, on one hosted platform.

Onyx Software is a curious presence in our market leader calculations. Although primarily a midmarket player catering to larger companies, it enjoys substantial uptake with smaller firms--and has been shoved out of its traditional midmarket leadership role by such enterprise players as Siebel and PeopleSoft. "Onyx is seeing success in the public sector," but even strong verticals won't protect the company from competitive realities, says AMR Research's Preslan. "I think they have a lot to fear in Microsoft."

No one expects Onyx to reinvent itself as an SMB provider--the company continues to serve large midmarket firms and to seek larger midmarket deals--however, it does serve a substantial share of the SMB market.

Salesforce.com rounds out the SMB leaders, having attracted a substantial small-business following with simple pricing plans and an implicit promise to make CRM easier than competitive packaged products. Although the company's sforce integration platform is largely seen as a play to encourage enterprise adoption, Salesforce.com's SMB customers should soon see the fruits of third-party plug-ins.

SMB Suite CRM

The Winner
Last year's midmarket runner-up has lived in interesting times, which in this case some see as both a curse and a blessing. Parent company Best Software continues to grow its CRM stake and SalesLogix is driving that growth. Jon Van Duyne dismantled SalesLogix's direct sales force to restore reseller confidence, and is refocusing the company's efforts to improve functionality and to promptly resolve software problems. As a result, Best enjoyed continued (if muted) growth of its CRM revenues, and has a strong lead in SMB market share. Van Duyne largely managed to keep the reseller channel together despite the lure of Microsoft, and has been handed a gift-wrapped package in ACCPAC CRM and its large partner roster.

Although turnkey vertical packages and on-demand CRM have become watchwords, and analysts and CRM adopters both agonized about the costs and potential pitfalls of heavily modified CRM platforms, Van Duyne has embraced a contrarian approach. He directly touts SalesLogix's strength as a customizable software system for business--and cites that capability as the appeal for its large reseller network and 6,000-plus and growing customer base.

Best also deserves honorable mention for adding ACCPAC CRM to its SMB mix. The Web-based service is sold both as an on-demand and on-premise solution. The market penetration for ACCPAC CRM remains low, but the company hopes to slot it between ACT! and SalesLogix in its product mix--and come to the on-demand market with a more appropriate offering than the ill-fated Interact.com attempt of a few years back. "ACCPAC fills a couple of holes for them, but it is not clear where ACCPAC is going to end up," Kinikin says. --Jason Compton

Click here for Part 2 of the Market Leaders article.

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