Illustration by Gerry Chapleski / Source: AMR Research, 1999
By the end of 1998, the landscape of CRM software vendors was an evenly dispersed mix of big and mid-sized players, small up-and-comers and boutiques, and giant ERP vendors looking hungrily at the front office market. These companies enjoyed combined revenues of $2.3 billion, as CRM became a buzzword for companies large and small, across all industries.
While the final numeric roundup of the current year's CRM marketplace is still months away, it will no doubt reflect the significant changes that occurred in the CRM landscape over the last 12 months. It has been a year of alliances, record-breaking revenues and disappointing red ink. Venture capital flowed as new, improved technologies bloomed. Management teams came and went, some in victory, others in disgrace. All of this activity took place before an ongoing backdrop-the march toward vendor consolidation. "The Big Shakeout," as it can be termed, will ultimately leave only a few CRM vendors standing. The events of 1999 offer a preview of who those vendors might be.
The Big Boys
The big news in the high-end market this year came from Vantive. After years of spreading itself too thin and futilely trying to compete head-on with Siebel, the second largest CRM vendor saw its reputation slip as revenues sank and stock plummeted. Industry buzz became negative, and law firms on both coasts that specialize in terrorizing companies with slumping stocks smelled blood. In 1999, Vantive replaced its management team and, most recently, announced a merger with back office stalwart, PeopleSoft. It remains to be seen if these steps will stop the company's hemorrhaging.
In 1999 Siebel Systems remained the undisputed top dog, dominating the high-end market with an impressive array of products, alliances and vision. Though no one doubts that Siebel will retain this position for some time to come, the company is now feeling more competition-particularly from established back-office vendors like Oracle and Baan who want in on the action. Throughout 1999, this competition-specifically from Oracle-amused the entire industry as software titans Tom Siebel and Larry Ellison occasionally took their personal rivalry public. But behind the cutting comments and not-so-subtle press releases lay the struggle between two very successful, deep-pocket competitors for CRM market domination. Maybe the CRM market will grow so large that it will sustain two or more dominant players. Most business case studies suggest otherwise.
Children of a Lesser Market
The middle and small CRM markets hosted a gold rush in 1999 as high-end vendors turned their sights toward smaller deals and Web-hosting made the small market viable. Siebel fired the opening shot by reaching out to smaller users by giving away a basic version of Siebel Sales for free. This branding exercise was the shot heard around the CRM world, alerting established midmarket players that Siebel wanted their market-all of it.
Reflecting the viability of the middle market, the three major upper-middle market vendors-Onyx, Pivotal and SalesLogix-all successfully went public. At the lower end of the middle market, GoldMine was bought by Bendata, an alliance which strategically fills gaps in both companies' product lines. Finally, the small market came alive as application service providers offered an affordable way for small businesses to embrace CRM, without embracing expensive IT departments.
The final word on which players-or player-will control all of these markets is years away. But, as Vantive's experience, as well as other industry events show, consolidation is underway. You can bet the vendor revenue pie chart for 1999 will look significantly different from the previous year.