The 2003 Market Leaders (Part 1)

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Enterprise CRM
The enterprise CRM market has seen a flurry of activity this past year. Siebel's key rivals are trying hard to lessen its domination by increasing their own market share. The vendors have made numerous improvements to their offerings, including adding to them via acquisition. And although some of the players have seen declining sales, others have managed to increase license revenues. Not surprisingly, Siebel Systems remains number one in the enterprise CRM market, while SAP AG maintains its market share--keeping pace at number two. PeopleSoft and Oracle take the number three and four spots respectively, while Amdocs holds its own in a very competitive market, standing steadfast at number five.

The past four quarters have not been smooth sailing for Siebel. With sharp revenue drops, some believe that the market leader's future as the top name in CRM may be at stake. But analysts are not so quick to dismiss Siebel's viability just yet.

"[It is] a solid company with a solid product, it will take a few more quarters to see if Siebel is in a state of permanent decline, or if the company's sales will level off and possibly climb again," says Tom Topolinski, vice president for Gartner's worldwide software applications group. Gartner cited Siebel as a leader in 11 of its Magic Quadrants.

Perhaps Siebel's biggest hurdle in retaining its leader position will be overcoming what analysts call a fundamental structural problem. "Siebel is backed into a corner. It is now best-of-breed," says Sheryl Kingstone, CRM program manager at the Yankee group. "For [Siebel] to stay competitive it needs to rearchitect to a more modular, composite application framework, so it can more easily and cost effectively integrate with other back-office and supply chain applications.

"By rearchitecting it will also be able to more easily adapt to the 'new,' dynamic CRM that addresses the edge-of-the-enterprise initiatives that are more customer- and partner-facing initiatives," Kingstone adds. "That requires a much more flexible framework, and integration and content management improvements."

To maintain its leadership position, Siebel has strengthened its UAN-- related alliances, launched a new bank teller product with IBM, and is partnering with ClientLogic to bolster its call center--outsourcing initiatives. Additionally, Siebel acquired messaging solution provider BoldFish, and included the technology in its summer release of Siebel Email Marketing.

Only time will tell if Siebel can retain its leadership position. Perhaps the 2004 release of Siebel 8 will help reverse its decline.

The Enterprise Landscape

The largest applications vendor in the world, SAP AG is also the second largest CRM vendor. And SAP's market share is growing steadily. "Siebel is likely to lose its position as the number one CRM vendor this year to SAP," says Erin Kinikin, vice president and research leader at Giga/Forrester Research. "SAP's suite message is taking hold in its install base--especially with manufacturing companies."

SAP recently made significant upgrades to its CRM solution with the release of mySAP 4.0, which, in addition to being more vertically focused than previous versions, sports components aimed at small and midsize companies. All this is part of SAP's plan to be the world leader in CRM.

According to Gartner, Siebel lost almost 4 percent market share over the past year, while SAP gained five points. If Siebel continues to slip and SAP picks up that slack, the two may end up neck and neck next year. Or the balance of power may shift entirely.

PeopleSoft continues to make strides in the CRM market, and its acquisition of J.D. Edwards in July may help quicken the pace. "The combined companies will make PeopleSoft the number-two applications vendor," says Steve Swasey, a spokesman for the company. PeopleSoft says the combined stable of products, plus the addition of J.D. Edwards' mid-market customers will be a boon for future growth. The company sees the potential for even more market share gains than the .4 percent it grabbed over the past year.

"The product is solid; it is definitely in contention for the number two CRM position behind Siebel," Kingstone says. "While SAP is claiming that spot--its latest 4.0 solution does a great catch-up job and is stronger in the e-selling and underlying infrastructure--PeopleSoft's customer service application has more attributable customers."

Oracle, which places fourth among enterprise CRM vendors, has recently made some big waves in the sea of CRM. Its highly publicized takeover bid for PeopleSoft, along with its release of its 11i suite, have repeatedly placed the company in the CRM spotlight. However, flat license sales may stall Oracle's quest to unseat SAP as the largest applications company.

Even with flat license sales, some analysts say that Oracle is poised to make strong gains in a consolidating CRM landscape. "Oracle has not had a lot of success with CRM so far, but will get there eventually. It's inevitable," says Patrick Walravens, managing director and senior research analyst, application software, at JMP Securities.

Larry Ellison has outlined his plan for growth: acquisition. "SAP is number one, but I don't see why the number-two and number-three guys shouldn't combine to give them a run for their money," Ellison recently said during a meeting with analysts.

In a very competitive market Amdocs was able to hold its own over the past year. Releasing version 12 of the Clarify CRM suite it acquired in 2001, Amdocs has held tight to a strong nugget of market share. Another acquisition, this time of the assets of defunct Xchange, may help Amdocs stay on the radar, if not gain more of the market.

"It's very strong in delivering deep functionality in customer care for the telecommunications, financial services, and high-technology industries, and will continue to focus on only those verticals," Kingstone says. "Amdocs could slowly gain more market share over the next year by targeting PeopleSoft customers that do not want to migrate to the next version of PeopleSoft or Oracle." --Martin Schneider

Enterprise CRM One to Watch: KANA
Some may think the glory days of KANA are gone, as one of the companies left in the dust of Siebel's rise to dominance. But KANA has stayed strong. As it gets more vertically focused (the company recently released a CRM product aimed at the healthcare market), KANA could be a threat to other enterprise players this year, as everyone scrambles for whatever market share is up for grabs. Two quarters of top-line growth in the past year lend credence to KANA's position as one CRM vendor to watch in coming months. M.S.

Mid-Market CRM
The word middle usually comes with baggage. It has connotations of negativity and mediocrity--think stuck in the middle or middle of the road. But when it comes to CRM, the middle is the sweet spot. The mid-market is the segment in which researchers predict the most growth. That translates into opportunity for CRM vendors and more choices for mid-market customers.

Still, there are differing opinions about how to measure a mid-market customer company. Some CRM providers measure by the number of employees. Others use annual revenue. We are going by conventional wisdom, which estimates annual company revenue to be below $1 billion.

IDC predicts the worldwide CRM market to grow at a rate of 18.9 percent annually, reaching $45.6 billion in 2006. The mid-market companies will do most of the additional spending. Market researcher Gartner claims that only 2 percent of small businesses and just 20 percent of midsize companies are currently using CRM solutions.

A report released earlier this year by Meta Group states that midsize companies--those with 500 to 5,000 employees--are increasing IT spending. But for those who cater to the mid-market, there are still some tough times ahead.

The Mid-Market Landscape

Onyx Software came out on the top of the mid-market CRM heap in 2002 and retains that position in 2003. Onyx services the upper spectrum of the mid-market. The company, which was founded in 1994 and went public in 1999, continues to grow its customer base. It added more than 65 new customers and expanded its position with more than 125 of its existing customers.

However, despite retaining its leadership and adding customers, Onyx has hit some hard times. Revenue for the company was down to $69 million from $95 million for the same period a year ago, but the company has started to stem the losses. For the 12-month period ended March 30, 2003, Onyx lost nearly $10 million, but that is way down from the $86 million it lost for the corresponding period last year.

The company has taken restructuring and cost-cutting steps over the past several months and expects expenses for the second half of calendar 2003 to be about $15 million.

Highlights for the company include a deal with IBM, whereby Onyx will power IBM's On Demand CRM offering. Onyx also announced a new employee portal for Microsoft SQL and Oracle.

Best Software's CRM Division is holding steady in the number-two spot.

In February the company released a much-anticipated online version of its ACT! contact management program. October saw the launch of Best's mid-market CRM platform, SalesLogix version 6.0, which featured about 200 enhancements.

In addition, Best's army of resellers experienced some changes. The company revamped its Partner Advantage program to include more co-op marketing funds, and increased margins on new customer sales and the percentage of net product revenue.

Salesforce.com has moved up to third place from its fifth-place spot in 2002. The hosted CRM provider has spread its "No Software" mantra through savvy marketing and public relations, including lavish product launches at a time when the rest of the industry is tightening their collective belts.

Hosted solutions are on the rise, and the company has paved the way for hosted CRM solutions that compete with traditional CRM implementations. Salesforce.com claims it now has more than 6,900 customers and more than 94,000 users. That is up from a year ago, when the then three-year-old company had 5,000 customers and more than 70,000 users.

In early June Salesforce unveiled a service called sforce, with the backing of tech heavyweights including Microsoft, Sun Microsystems, BEA, and Borland. Sforce will allow other software providers to create and sell Web services and host them on Salesforce.com's servers.

The privately held company also announced in June that it had concluded its first profitable quarter. For the three months ended April 30, 2003, Salesforce.com posted revenue of $19.1 million, a 22 percent increase compared to the previous quarter's revenue of $15.7 million, and nearly doubling the $9.6 million recorded for the same quarter a year ago. Salesforce.com generated a profit of $188,000 (on an unaudited basis), which is more than 1 percent of its revenue during this period. Salesforce.com generated more than $3.7 million dollars in additional cash during the quarter, and now has more than $48 million in total deferred revenue.

Founder, Chairman, and CEO Marc Benioff says the company is on pace to reach $100 million in revenue this year, nearly double that of 2002. A year ago Benioff predicted that Salesforce.com would reach $120 million by 2004.

FrontRange Solutions dropped to fourth place from third. The company is not far off its pace from last year's $86 million in revenue.

One of the big challenges facing FrontRange is replacing Patrick Bultema, the company's president and CEO. Bultema tendered his resignation in June after playing a key role in helping get FrontRange's financials back on track.

In the first half of the year the company released a handful of new products, including HEAT 7.0, GoldMine 6.0, CustomerIQ, and HEAT Plus Knowledge.

Jerry Lumpkin, senior vice president of marketing worldwide for FrontRange, says that moving forward FrontRange plans to introduce a series of new applications customized for vertical markets. It will also continue to build its partner channel and expand into global markets, including Asia Pacific, Europe, and the Middle East.

Pivotal has struggled this year to triage the losses it has experienced over the past year, which are now down to net losses of $31.7 million for the period. A year ago its losses totaled nearly $105 million. Revenues for the company are just over half of what they were a year ago. That means that Pivotal has dropped from fourth place in the mid-market to fifth place.

Company president and CEO Bo Manning has called 2003 a year of investment.

Still, the company continues to win customers, signing up 133 new customers for the year. It also delivered version 5 of its flagship product, along with vertical versions of Pivotal 5 for healthcare insurance, commercial banking, asset management, private banking, capital markets, real estate/construction, and life sciences (medical device and diagnostic test manufacturing).

Yes, there is a lot of competition. But analysts say there is room for everyone, and that it is unlikely that just one company will dominate the mid-market space. --Lisa Picarille

Mid-Market Ones to Watch: Microsoft and UpShot
The old saying is, It's not the devil you know, but the devil you don't.
In the CRM mid-market space it's likely to be both. That's why the honor of being the "One to Watch" is being bestowed on two companies: one you know (Microsoft), and one that might just sneak up on you (UpShot).
Microsoft rarely does anything that goes unnoticed, so when the software behemoth announced in February 2002 that it would enter the CRM market it started a flood of speculation from users, analysts, pundits, and rivals. L.P.

Microsoft CRM has been shipping since January. The company has yet to disclose sales figures, but claims it is on track with its original forecasts. Sources close to the company estimate that Microsoft had approximately 1,000 customers by midsummer.

The company disclosed that by the end of July more than 6,000 copies of MS CRM had been downloaded via the Microsoft Developer Network. Company officials say that customer size ranges from 1,500 seats to fewer than 50 seats. The company also noted that 60 percent of its sales are CRM only (and not into its installed base of Great Plains users), and that fewer than 10 percent of the implementations have opted to deploy the solution through a third-party hosting company.

In addition, the company has an army of partners. Microsoft claims that more than 1,300 partners, including resellers, system integrators, and third-party software developers, have jumped on the MS CRM bandwagon.
"Don't underestimate the impact of MS CRM. It froze the mid-market. Everyone wants to know what's going on with Microsoft. Everyone is watching [it] carefully," says Erin Kinikin, an analyst with market research firm Giga/Forrester Research.

UpShot is another company that rivals are keeping a close eye on.

Hosted CRM solutions are getting a lot of attention, because of their growing popularity. UpShot is one of the ASPs helping to boost the profile of online CRM products. The company is quietly winning customers, often in the shadow of its larger rival, Salesforce.com. "UpShot has a strong product, but [it is] not typically as vocal as Salesforce about spreading the word," Kinikin says. Still, UpShot's roster of customers includes Xerox, HP, and many other Fortune 1000 companies. L.P.

Click here for Part 2 of the Market Leaders article.

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