The Siren Call of the Midmarket
If it seems like more and more CRM vendors are talking about how pleased they are to understand and serve the needs of the midmarket, that's because they are.
The reason is simple: Midsize companies are increasing their uptake of CRM, while large, international enterprises are cutting back. According to data from Gartner, companies with 5,000 or more employees cut CRM license spending by nearly one quarter in 2003. By comparison, those with between 100 and 500 employees increased spending by 12 percent, while companies with fewer than 100 employees increased their spending by at least 22 percent.
"Some of it is just the volume. You break down the sheer number of companies in [the midmarket], and the volumes in any region are going to be five to ten times more than the top-tier players," says Scott Southall, managing director of midmarket for the northeastern U.S. at BearingPoint.
"Everybody talked about it before, and there was a lot of success, but there are ten million small businesses with under one hundred employees, and while a lot may have ACT! or GoldMine, less than two percent would probably say they have an integrated [CRM strategy]," says Wendy Close, a Gartner research director. That opportunity is bringing enterprise players downmarket--for example, SAP's new Business One initiative tag teams with mySAP for a two-front attack on the midmarket-- as well as enticing startup companies, such as Entellium and Airframe, to aggressively court midmarket customers from day one.
Some CRM vendors target midsize enterprises, while others prefer to divide and conquer Fortune 1,000 accounts one division at a time. "Most would consider Cisco a very large organization, but we have about a dozen different implementations at Cisco, [because each] department has specific needs," says Greg Gianforte, CEO of on-demand customer service developer RightNow Technologies.
And while many midmarket companies have made purchases of complete CRM solutions, others are rolling out capabilities in stages. "I think about 50 percent of [companies] using help-desk and customer service functionality haven't migrated to sales, support, and marketing yet," says Manu Das, president of CRM vendor Soffront. He notes that businesses tend to complete customer service implementations, including st Internet portals, before moving on to sales functionality and, eventually, marketing.
Although we are not in a new golden age of technology spending and business reengineering, at least one market mover is seen as raising the tide for all ships. "Microsoft entering the market made more companies think [they] have to have [CRM], like Office or Excel, and it boosted other [vendors'] business," Close says.
The popularity of on-demand CRM as a cheap and easy way to CRM functionality has given new life to the industry, vendors and customers alike. "The midmarket needs benefits in the first ninety days," Gianforte says.
The conventional wisdom for the midmarket is that to realize these rapid returns, client companies demand systems that function out of the box and want little to do with customization. Indeed, many midmarket players, from Salesforce.com to Siebel Systems, have come to the market with instant-on or precustomized vertical solutions, and the former has done a tidy midmarket business on the strength of streamlining. "Salesforce.com may do ninety percent of what you need to do really well. How much would you want to pay for that remaining ten percent?" BearingPoint's Southall says. "That's why they've penetrated the market very well at the midmarket or [enterprise] business unit level. That's been a good strategy."
While on-demand players offer the ability to customize their offerings, some vendors, like Microsoft and SalesLogix, built their business on their partners' ability to customize their software specifically for each end customer. "We have an opportunity to do some [prepackaged] verticals...but mostly, we are putting effort into the product so our partners can customize it," says Jon van Duyne, SalesLogix general manager. "We position CRM for people who are really serious about CRM."
With so many choices and so many vendors beating down the door to win midmarket business, customers need to be choosy without being paralyzed. "For almost every company I deal with, there are multiple solutions that meet their needs," Southall says. "Don't look at one hundred percent of your requirements, look at your differentiating requirements. Those are the ones that are going to tell you your best choice."