Stand and Deliver

Advertising isn't insurance, and trucks aren't cereal. So should the CRM systems that sell and support them be the same? The rise of industry-specific CRM programs indicates the answer is "no."

When you think of the sheer variety of products and services out there as well as how they're sold and supported, it's something of a surprise that generic CRM programs have done so well. Terminology, business processes and back-office functions vary industry by industry, let alone company by company. Why not have a CRM program that is tailored to the unique customer segments, management methodologies and business rules of a particular industry? While a few large industries have enjoyed such industry-specific functionality, as CRM matures, many other industries are putting vertically oriented tools on their wish lists.

Earlier on, the focus of CRM was horizontally integrated packages that linked front and back offices. Large vendors and the companies that could afford them characterized the market. These enterprise CRM packages weren't designed for vertical richness, however, so for companies that wanted industry-specific functionality, they had to build it themselves. The reality is that companies ended up spending millions of dollars on consulting services.

"For a couple of years companies were left with two options: client-server, which were expensive, costly, long-term implementation consulting with system integrators; or at the low end, PC-based products, which were not scaleable, flexible or really Web-based," notes Joe Childs, vice president of marketing at Scotts Valley, Calif.-based PreferSoft, a company started in May of this year to target e-commerce verticals.

In some ways, what's happening is that instead of buying general solutions and paying consultants to tailor them to a specific industry, companies are starting to prefer solutions that, for the most part, are already configured to their industry. "You have to do a lot of customization to a generic software package to get it to fit into pharmaceuticals," notes Mark Cieplik, senior vice president of worldwide sales and marketing at Dendrite International in Morristown, N.J. That customization has a cost.

The major CRM vendors are aware of the need to provide configured rather than customizable vertical products. Once they get a critical mass of customers in a particular industry, they start looking vertically. "They kind of sit down and make sure they have the most critical requirements for that industry," notes Judy Andaloro, a senior research analyst with AMR Research in Boston. Siebel, for example, has aggressively developed vertical offerings in such fields as utilities, financial services, high-tech and consumer packaged goods.

Today the market for vertical solutions is growing, and lower cost options are part of the mix. There are a number of industry-specific offerings for PCs and a whole category of emerging eCRM solutions that leverage the Internet and standards such as XML to make it increasingly easier to integrate customers, business partners and employees with back-end business processes.

With vertical solutions, sometimes companies have to balance tradeoffs between the tight integration of traditional enterprise CRM vendors with highly developed vertical functionality. The weight of those tradeoffs varies by industry. "For example, in high technology, you find more best of breed environments that aren't interested in buying a large suite offering. They are much more interested in buying a component for Internet selling and configuration, as compared to insurance, which is less developed as an investor in packaged technology. They are much more interested in a suite platform because it covers a large chunk of what they are aiming to do in their multichannel selling strategy," explains Steve Waters, vice president of marketing at FirePond in Waltham, Mass.

Or it can be that integration is less important. "One of the things we discovered in the small- to medium-enterprise market is that the demand for online, real-time synching up of all the applications is not as great. Perhaps the desire is there, but the cost to do it puts the company into the need to go out and find an Oracle, PeopleSoft or Vantive solution, for instance, where the integration is very tight," says Childs.

Leveraging Industry-Specific Expertise In many instances, vertical solutions are built around the best practice expertise of industry leaders and industry consultants. One of the leading financial services CRM providers, Janna Systems, is a good example. The founders of the Toronto-based company are former Andersen Consulting consultants and software people who worked in the financial services practice.

"From the start, we decided to focus on financial services; we never tried to be a general-market product," says April Dunford, director of product marketing. "We understand the business problems. We speak their language. We know there's a difference between the institutional sales group and the investment-banking group, and they have different pain points," she explains.

Partnerships are also often part of a successful vertical solution, whether they are for that business expertise or for technical know-how. "A lot of vendors partner with service providers or system integrators to help them build in the requirements, the processes and the terminology clients need for a particular vertical," remarks Andaloro. A vertical perspective may also help with implementation services since companies in an industry typically have common back-office systems with which they must integrate.

Outright acquisition of niche specialists is another way of adding rungs to the vertical ladder. Epicor Software, based in Irvine, Calif., started out primarily as a financial software vendor. In 1997 it acquired Clientele, a CRM solution vendor, adding to Epicor's customer support and sales force automation capabilities. Then it went on to acquire a company called Dataworks to add to its vertical manufacturing functionality. Its verticals now include software and computer services, high-tech manufacturing, professional services and wholesale distribution.

Dendrite has done the same thing, acquiring an advanced analytics company, called Analytica, to propel it further into the pharmaceutical space. "We are trying to incorporate other technologies either by acquiring or aligning ourselves with good companies to give our customers what they want," says Cieplik.

Components Drive Midmarket Opportunities
The growth of verticals perhaps could have its biggest impact on companies in the low to midmarket range. They can increasingly afford what was previously the domain of only the biggest companies and their powerfully integrated enterprise CRM systems.

"When you look at the small- to medium-enterprise market, what we found as a better approach to reach them is to develop a horizontal application, but do it in way that comes prepackaged with several different verticals addressed with specific workflow templates. That enables the small- to medium-sized company to have a full featured eCRM application and be able to implement it at a much lower cost," says Childs. His company has scores of templates now for about 25 various vertical industries. [see sidebar]

FirePond uses the same component architecture. "Architecturally, you need to be flexible enough to componentize' your offering so that you can compete for business and meet the requirements of different verticals," says Waters. That modular architecture is evident in FirePond's organizational structure, as well. One group works on the core technology and core planning for the product, but there are others that are layered on top to capture, document and plan out functionality and deliverables by vertical.

PreferSoft touts self-configuration as one of its strengths. "Rather than have to pay for custom programming and extensive consulting, our configuration manager allows for point-and-click reconfiguration so that you don't have to hard-code any of the programming to make it fit the way you do business. This makes it more affordable and timely to implement," says Childs.

"Many of the verticals share some of the same standard templates," says Childs. "What we hope as our products mature and grow in the marketplace is that our system integrators, VARs and ASPs will begin to develop content expertise, perhaps within a vertical, and modify our standard templates or create their own any way they want." By licensing the source code, they can encourage the development of highly specialized features that are beyond the core set.

Such industry-specific pre-configuration doesn't mean that vertically oriented CRM solutions require no consulting. "We are a highly verticalized product so we have a lot of tailored functionality specific to financial services, but we still find that almost every customer implementation is different and does require some professional services. Sometimes you need the professional services to integrate with back-office systems," says Dunford.

Dendrite too, despite its vertical orientation, derives an unusually high 75 percent of its revenue from services. "The relationship we have with customers is not a software transaction," says Cieplik. "It's evolved on the customer's requirement to have kind of a one-stop shop for these kinds of services." He refers to product support, datacenter support, legacy systems and new field device integration, data cleansing and so on.

Gaining Vertical Leverage
Vertical solutions provide companies the opportunity to tap into focused expertise that isn't available from generic CRM vendors. "Everything we do from our R&D investments to the way we design our service delivery systems, to the software we eventually deliver to the customer, it's just designed around that one industry," says Cieplik.

At FirePond, the dedication is reflected in the company's organizational structure. "We have vice presidents who run those (vertical) business units, and they also have oversight of development and implementation resources that are specific to those verticals," says Waters. The company's professional services organization is designed around verticals, as well.

Such focus develops core competency. "We are not bogged down trying to solve the problems of other industries and work that into our product, as well," says Dunford. "We are very focused on banking and insurance, so all of our new product development is focused on expanding that expertise instead of trying to add features and functions that that vertical isn't interested in."

Interestingly, some vertical vendors see internally developed systems as their biggest competition. "Our biggest competition is in-house-developed systems," says Cieplik. Still, the pace of technology development is applying significant challenges for such homegrown solutions. "I think the cycle time for development of new capabilities and software and supporting services continues to get smaller and smaller. It's more difficult for companies if they are doing all in-house development to keep up," he explains. "I'm not saying that another company can't do that, but if their core competency is in research and drugs, that's where the money's going to go versus the development of technology. We can gather input from other manufacturers on a worldwide basis to provide more leading-edge capabilities sooner than you might be able to do it in-house," says Cieplik.

To be fair, when a company does not create or customize its own software, there's a risk of forfeiting the opportunity for a differentiated, value-added environment. But the trend is clear. The costs of updating and maintaining customized applications is increasingly becoming prohibitive, and it will become harder and harder for companies to justify that expense when there are a growing number of products available that provide industry-specific functionality and economies of scale in terms of development capabilities. Vertical vendors are racing to be the next best choice.