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J.D. Edwards buys YOUcentric and promises an integrated CRM/ERP solution.
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Mergers and acquisitions have drastically reduced the number of unique, independent players in the operational CRM space over the past 24 months. Charlotte, N.C.-based YOUcentric is the latest to hand over the keys to a new corporate parent by agreeing to be purchased by ERP stalwart J.D. Edwards of Denver.

As long ago as last spring, some analysts were privately remarking that J.D. Edwards was missing the larger trend to combine ERP offerings with a CRM suite. J.D. Edwards had made a point to rely on CRM partnerships rather than the in-house development or acquisition strategies its major competitors were pursuing. Facing a general technology spending slowdown and an ongoing lull in the market for ERP systems, the company had to concede that its competitors were right.

"We took a look, and it wasn't working for us, or [partner] Siebel," says Dave Siebert, J.D. Edward's group vice president. He describes the bottom-line results of the Siebel cross-selling relationship as minor and unprofitable. The call went out to YOUcentric and roughly 10 other merger candidates during the spring because the company concluded that they had already spent the time that might have been used to develop in-house CRM capabilities.

In retrospect, however, the company may be better off overall for the wait. "If anything, it's a buying [market]," says Aaron Zornes, Meta Group research director. By showing restraint when CRM mergers cost hundreds of millions or even billions of dollars, Zornes feels J.D. Edwards has shrewdly traded first-mover advantage for bargain pricing. "Everybody paid premiums...some were able to pay in inflated 'e-stock' currencies, but now if you have cash, cash is king and there's a lot of good deals out there."

J.D. Edwards reports that the deal values YOUcentric at $86 million, paid for with a combination of cash and stock. It is worth noting that the purchase announcement was made just before J.D. Edwards reported a $186 million loss for the quarter ending July 31, which begs the question of how the purchase of a currently unprofitable CRM concern will help turn around the fortunes of the flagship company.

Besides stating that the company has faith in projections that put the growth of the CRM market around 30 percent for the next five years, Siebert believes that an integrated CRM offering will appeal greatly to the company's clients. "We have a very large opportunity in our installed base because the cost of sale is lower than acquiring new business," he says. According to research commissioned by the company, only 3 percent of its 6,200 customers have deployed a CRM suite, yet roughly one-third are planning to investigate or acquire one within two years. That meant the time was right to call upon the customer base with a retooled YOUcentric system.

Mid-tier strategy

Zornes agrees that J.D. Edwards has the potential to realize significant growth because of its reach into the mid-tier. He contends that integrating a pure-bred mid-tier CRM system could give the company an advantage over Siebel, SAP and PeopleSoft, which he characterizes as also coveting that market segment. "It's important to acknowledge that it's not pejorative to say something is a 'midmarket product' because [some firms] don't need all the functionality of Siebel," he says.

Although Siebert speaks of building a "collaborative commerce" platform with the combined technologies, in truth, it is difficult to project the exact scope of the vision because there is no precedent-according to Siebert, no enterprise to date has deployed an integrated combination of the two systems. Despite the standing start, he believes working integration between the two product lines will be available before year's end, owing in part to the open data model in the YOUcentric product suite.

Between the lack of a working example of YOUcentric/J.D. Edwards software integration and the usual administrative hassles of an acquisition, Zornes advises that it will take at least half a year from the close of the deal to judge its worth. He gives the company a better than average chance of being able to make a compelling argument to the market through its sales force. "The mid-tier market is highly dependent on channel distribution, and the fact that J.D. Edwards does have that channel strategy is very interesting."

J.D. Edwards plans to retain much of the YOUcentric operation in Charlotte, although some redundant administrative positions will be eliminated, and some developers will migrate between the Denver and Charlotte offices. Most of the sales staff will be retrained to offer the combined J.D. Edwards technology suite. Selling stand-alone CRM suites will no longer be a priority, although Siebert says that YOUcentric's strength in penetrating financial services companies with a CRM-only solution will not be cast aside.

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