Merger Storm on the Horizon?
The recent acquisition of Primus by Art Technology Group could be the mild thunderclap before a storm of CRM merger activity. Pressured by customers to deliver wider ranges of functionality, Art Schoeller, Yankee Group senior analyst, says that merger "clusters" are likely to grow, particularly among online service and self-service providers.
"On the demand side, people want to be able to do both [self-service] and assisted service," he says. "People are saying, 'I don't need more feature expansion, I need more integration, I need these point solutions to come together better.'" Specifically, pure-play knowledge-base providers are seeing a need to compete with service-oriented companies that are providing both internal knowledge management and external customer support technologies, which may spark a rapid need for an expanded range of services.
Schoeller also believes that service providers, such as contact center outsourcers, will continue to merge, and that merger activity will increasingly be international in focus. "The North America-based firms need a footprint in the new geographically popular locations such as India, and [overseas outsourcers] are realizing that they need feet on the street here in North America in account managers to get out and get the customers."
New companies continue to enter the CRM market as aggressive suite-based startups or focused vertical specialists, but the coming wave of consolidation could significantly shrink the roster. "There is a predicted consolidation in CRM over the next few years of about 50 percent, so about half of the vendors focusing on CRM will exit the market, either through merger or acquisition, or just go out of business," says Joe Outlaw, president of Outlaw Research.
"A lot of what is going on is traditional: [vendors] buying market share, because they think that's important to them," Outlaw says, pointing to Siebel's parallel pursuit of an in-house on-demand strategy while purchasing UpShot to obtain a larger installed base of customers that had identified themselves as on-demand users.
Megamergers bringing together two CRM suite vendors are unlikely. "There are very few best-of-breed solutions in the midmarket" available to be purchased, Outlaw says. Pivotal and SalesLogix are already part of a larger company, and Outlaw says that Onyx's recent selection of CEO Janice Anderson indicates that the firm wishes to retain independence. While PeopleSoft and to a lesser extent SAP have grown through acquisition, Outlaw says that Oracle's lack of interest in buying a midmarket vendor indicates that the time for such a move may be past.
Another potentially calming effect on software mergers in general is the advent of Web-services technology, which if successful will allow vendors large and small to seamlessly combine functionality for enterprise clients and Internet users. The reasoning goes that smaller companies will be able to compete on more equal footing, while large companies will not need to purchase point solution vendors in order to integrate their unique capabilities. "Eventually, that may allow a company to plug-and-play [software] pieces, but it just seems like it's going to take a while," Outlaw says.
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