With mergers and acquisitions accelerating, consider these four strategies for protecting your company.
For the rest of the June 2005 issue of CRM magazine please click here
There's no mistaking it: The CRM market is consolidating and that consolidation is not merely happening, it's accelerating.
So what is a buyer to do? Say that I'm in charge of managing the investment in CRM at a large company and I just heard that my vendor is being acquired? What if a small vendor offers the best fit and/or best value? Should I be concerned about the smaller vendor's staying power?
Following are four categories of responses that a current or prospective CRM customer can have:
What, me worry? Not surprisingly, few buyers are following this Alfred E. Neuman "strategy"--certainly, the majority of the people I've spoken to and worked with in recent months indicate that consolidation is top-of-mind.
Go hosted. If you've ever heard Marc Benioff speak to customers, one of the first things he always says is, "You can turn us off anytime you want." The main benefit that the hosted delivery model offers is massive reduction in up-front risk of both money and time. You can't turn off a multiyear, expensive, traditional implementation if it's not working, but you can under the new model. This choice removes a major impediment to CRM implementation or adoption.
Get legal protection. It is quite common to build change of control clauses into purchase contracts (it should also be noted that PeopleSoft proactively sold these clauses when Oracle announced its initial intent to acquire PeopleSoft, to prevent its sales from drying up), as well as engage in other practices like source-code escrow. These steps can protect your company financially, but they are expensive and often aren't an option for smaller enterprises.
Seek local assistance. This is the most overlooked response, but for many companies I believe the most practical. Smaller buyers are starting to recognize that it makes less sense for them to negotiate directly with national software providers, and that their local partners can provide significant value-add.
Value-added resellers and integrators can make a real difference for their customers by protecting their investments during consolidation. It can be done by carrying multiple product lines; by maintaining specific technical expertise that can be better than the manufacturers themselves offer; and through other arrangements with both the manufacturers and customers that protect investments and add value.
The end result of CRM consolidation will be the presence of no more than three to five enterprise vendors that serve the needs of the largest customers. Every deal won will be taken away from the competition, and the barriers to success for smaller vendors are extremely high given the entrenched nature of the major vendors, in particular, Oracle, SAP, and Siebel.
In the SMB market the opportunity is significantly larger, but the turmoil is also greater. Again, I believe that channel presence and relationships will be the most important asset of a small technology provider. Companies including Best Software and Microsoft have already established strong channel relationships. Those who wish to serve this market will need to scramble to catch up, or be left behind as consolidation both continues and accelerates.
Significant CRM M&A Deals
Chris Selland is a principal analyst at Covington Associates, a specialty investment banking firm. He is working on analysis of enterprise software and service market consolidation and advising clients on M&A, fundraising, and strategic issues. Chris can be reached at firstname.lastname@example.org
Sponsored By: Jacada, Avaya, Confirmit, inMoment and BoldChat
Sponsored By: Genesys, Avaya, Verint, and Aspect
Sponsored By: Informatica