CRM Vendors Strategize the Mid-market
According to investment bank Morgan stanley, the acquisition of mid-market CRM player Interact Commerce (formerly SalesLogix) by UK accounting software vendor Sage is a bold move in a market characterised by diving share prices, twitchy analysts and nervous investors.
But then again what do these people know? The reality is that it is less a "bold" move and more business as usual for a vendor that has built a global business around shrewd acquisitions.
Interact plays in the same low to mid-market space as Sage, in which CRM products have only five percent market penetration. Sage has a worldwide back-office customer base of 2.5 million, dominates its market-place and says that following extensive research 75 percent of its customers believe that a successful CRM application needs to be integrated with back-end software. In other words they want integrated software.
After totting up the potential figures, Morgan stanley explained the value of the deal. "If Sage was successful in selling Interact's ACT! [contact management] product to just half of its installed base, and Saleslogix [CRM system] into a further 5,000 existing customers, we calculate that the licence revenue alone would be more than $500 million."
Sage's swoop on Interact is an affirmation that CRM within in the SME (small to medium- sized enterprise) space is set to grow. The company is claiming it will deliver complete integration with its accounting software within a year, by which time, according to analyst Nick Hewson, the market should be about ready for it.
Phil Branston, Sage's head of investor relations, said: "We already have a degree of commonality between the products so we won't need to write 20 pieces of middleware, one for each accounting package."
He claims that its SME target market is unlikely to require a large degree of customisation. "It's not such a big issue in our space."
A bigger issue for Sage will come when it attempts to integrate the higher-end products. Sage has never had a strategy of developing a global product. While bundling aspects of ACT, which is a basic contact management system, into a back-office system may be relatively straightforward, attempting the same with the more complex Saleslogix product may prove to be quite tricky.
Enterprise accounting vendors who have formed partnerships with CRM giant Siebel have reportedly experienced difficulties in including heavy front-office functionality into their back-end systems. While few will openly admit to it, they cannot produce customer reference sites and some of the integration work has been described by one industry insider as "a bit flaky".
Charlie Shaw, managing director of Great Plains/Siebel reseller Advantage Business Systems, said: "Demand is very strong and many mid-market SMEs are looking for a greater degree of sophistication.
He added he believed functionality would be slow to materialise: "[Sage will have to] caution user expectations. Great Plains has put together sophisticated integration but it's had to put a lot of resources and technology into it."
Sage's move also comes at a time when speculation is mounting that Microsoft is planning a takeover of either Pivotal or Onyx, both CRM players with a strong mid-market presence. Commentators believe it is just a matter of time before Microsoft makes its move following last year's takeover of accounting vendor Great Plains.
Adding and integrating a CRM front office capability would not only open up a new market, giving Microsoft greater leverage to push its Windows NT platform, but also rival Sage's potential.
In this context, the Interact acquisition can be seen as a protective measure designed to fence off its customer base. Sage has a history of expanding by acquiring companies and their users and then selling into the growing customer base, but this time, it could encounter problems, not least because of the likelihood of competition for the same SME investment monies, which may have been earmarked for back-office sales. This could lead to conflict between resellers vying for the same investment capital.
Whatever the reservations, one thing is certain. Sage's attempt to put together a comprehensive front-to-back-office suite has been executed with infallible timing.