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  • December 1, 2005
  • By Marshall Lager, founder and managing principal, Third Idea Consulting; contributor, CRM magazine

The Year in (P)review

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Reaching the end of the calendar year brings with it an urge to recall what happened in the previous 12 months, and to wonder what is to come. Businesses are no different from people in that respect, and it's just as important for organizations as it is for people to contemplate the past and future. What may be dismissed in individuals as navel-gazing may truly be strategic planning in the corporate sense, where a clear understanding of prior trends and insight into looming possibilities can have a real effect on the future of the company, including its employees and customers. Since those who fail to learn from history are doomed to repeat it, let's first examine some of the key goings-on of 2005. Mergers and acquisitions were the most visible issue this year, but the growth of on-demand, or software as a service (SaaS), brought an influx of interest (and customers) to the CRM industry. Knowing what happened in 2005 is handy, but predictions are what make people read articles like this. Of course, prediction can be just another word for guess, but these are educated guesses. Some are logical extensions of events we've already mentioned, while others are just now starting to emerge and tempt industry watchers with the possibilities. In the end you will have to draw your own conclusions. Would you like fries with your subsidiary? There's no question that 2005 was a shopping spree among the top vendors of CRM and related products and services (see the sidebar, 2005 Mergers and Acquisitions). The past year's headlines could easily be mistaken for the weddings and engagements section of the local newspaper--or, in one particular case, a warehouse inventory list. "It's not surprising that integration and business intelligence are key acquisition grounds in the CRM space," says Rebecca Wettemann, vice president of research for Nucleus Research. "Just as the 'single customer view' requires companies to pull different data sources together, and more proactive intelligent response to customer demand requires more sophisticated analytics, CRM vendors that have the resources are looking to build or buy these capabilities as quickly as possible." According to Wettemann, both VoIP vendors and CRM vendors with call center capabilities are looking for applications to leverage their strengths. "VoIP on its own is interesting, but not enough to make companies rip out traditional phone systems that work well--they need apps that integrate and leverage the strengths of both areas," Wettemann says. "The Scansoft-Nuance merger is one of the boldest moves the speech industry has seen in the past two years," says Daniel Hong, CRM analyst for Datamonitor. "Other speech engine vendors will attempt to increase market share to compete, either through increasing investment or buying other engine vendors. The merger is a clear sign of the value shifting from core speech components to higher value areas in the voice business value chain, namely applications and services." Overall, Wettemann believes acquisitions are only part of the answer. "Given that most vendors have partnerships in these areas, the acquirers will have to show that their combined strength is more than just one less check to write, and that they can cut deployment time and management cost for users." And Oracle acquired everybody else
Oracle, helmed by Larry Ellison, added to its already-impressive enterprise software capabilities by acquiring 10 other companies whose expertise includes a range of technological prowess and vertical focus. The two most noteworthy Oracle acquisitions bracket the company's shopping spree at beginning and end: In January Oracle completed the hostile takeover of PeopleSoft, and announced its intent to acquire Siebel Systems in September. PeopleSoft brought with it the assets of J.D. Edwards, which PeopleSoft had acquired prior to Oracle's move. Siebel, one of the most important names in enterprise CRM, became a hot target for Oracle after it encountered difficulties with direction, revenue, and customer sentiment. It brings to Oracle 4,000 customers and close to 3.5 million end users. Those two buyouts alone would make Oracle a juggernaut in CRM and enterprise applications, but when the remaining octet of 2005 acquisitions are taken into account, rival vendors start thinking of this era as one the Chinese would call interesting times. March brought identity management solutions provider Oblix into the fold. Retek was acquired in April, adding a full range of capabilities for retail businesses. In June, Oracle gained the enterprise search savvy of TripleHop Technology, as well as the real-time data management strength of TimesTen. July was another double-up month, as retail profit optimizer ProfitLogic and content integration company Context Media joined the family. August gave Oracle the banking industry expertise of i-flex. And around the time of the Siebel announcement in September, Oracle also grabbed global supply chain and logistics management vendor G-Log. We're not going to say "On-demand is in demand" again, but... Providing software over the Web is not a new idea. In the late 1990s companies like NetLedger (now NetSuite) pioneered the no-software delivery model and called themselves application service providers (ASPs). Though a promising concept, the world was still warming up to e-commerce and lacked sufficient bandwidth, so ASPs were ahead of their time. NetSuite survived the ASP implosion and the dotcom bust, and is still happily chugging along, now providing a full CRM suite to SMBs. The ASP moniker is gone, replaced by hosting, on-demand, or SaaS. One company in particular has revitalized not only the on-demand space, but also the entire CRM industry. That company is Salesforce.com. Chairman and CEO Marc Benioff has taken the roles of pitchman for his company's value proposition and tireless proponent of on-demand software. His voluble nature, combined with the capabilities of Salesforce.com's many modules, has been a major contributor to the CRM industry's first year of double-digit revenue growth in five years. A host of hosted providers, including RightNow Technologies, have benefited from on-demand's ability to serve the needs of smaller businesses, as well as midsize and even enterprise customers. Many CRM vendors added a hosted option to existing product lines, such as Sage Software's ACT! For Web. Sage also introduced Sage CRM and Sage CRM.com, providing the same functionality whether on-premise or on-demand. Even Siebel, which had stated a commitment to installed software, got on board with Siebel OnDemand. Merge With Caution Oracle has promised support for all its acquired product lines, and has also said that Siebel would form a major portion of the company's Fusion middleware software-oriented architecture. Despite this, customers of Siebel, PeopleSoft, and some of the others are understandably nervous about the future of their expensive CRM systems. Marc Strohlein, vice president and lead analyst of research and advisory firm Outsell, says, "The Siebel acquisition, coming on the heels of the PeopleSoft acquisition, is likely to challenge Oracle, as it now has a number of sales force solutions to rationalize and/or integrate." It will be doing so against SAP, its chief rival, and also companies like Onyx, which are trying to make a name for themselves in enterprise applications. We never would have predicted that Microsoft CRM 2.0 would have been scrapped in favor of 3.0, but it happened. If Brad Wilson, general manager of Microsoft CRM, continues to lead his team forward, the suite will be rolling out around the time you read this. It's the first major renovation of the product since version 1, and industry analysts have given it consistently positive ratings in their previews. We wonder if Microsoft can rescue its place in CRM when the rollout eventually comes to pass. On the one hand, nobody ever lost a job by implementing a Microsoft solution, and the ability of Bill Gates's company to bring tremendous muscle to any problem will help it iron out any remaining issues. On the other, users and prospects have been repeatedly frustrated and disappointed by Microsoft's failure to deliver. The Amazon.com of business applications? We mentioned Salesforce.com previously, but we left out some specifics. At its Dreamforce conference in September 2005, the company announced the arrival of the AppExchange, a community wherein customers could test drive, review, and install third-party modules to their Salesforce.com implementations. "The AppExchange marketplace is one means of exploiting SaaS, enabling third party vendors to piggyback on the success of Salesforce.com while expanding the functionality of the product and making it more attractive to users," Strohlein says. One company that has already taken advantage of this (and the information management trend; see below) is Before the Call, a startup marketing automation vendor that used AppExchange and its Multiforce predecessor for fast-track marketing to the sort of customers who needed the application most. According to customer advocate and CEO Fred Walters, "Before the Call brings together unstructured and structured data to arm sales agents and executives with relevant, useful information. We also make that information part of your Salesforce.com or other CRM, so that it's a business asset instead of one agent's file." Information, please Data mining, data quality, information management and delivery, and related topics are beginning to cross our desks more often, and this suggests a possibly explosive trend toward expansion into that arena. "Information is currency in today's global economy, and just as different denominations carry value tied to the strength of the issuing government's economic stability, data's value is tied directly to its quality," says John Nicoli, general manager of the Trillium Software division of Harte-Hanks. "Financial data, manufacturing data, marketing data--the higher the quality, the better the business result. But as departmental lines blur and information becomes integrated across all levels of business operation, total data quality must become the new gold standard for data valuation." Colin Shearer, vice president of product marketing for SPSS, also believes that information, specifically analytics, is the next must-have part of the CRM puzzle. "More and more organizations are adding analytical capabilities to optimize [customer] interactions, and in the near term we'll see the vast majority of organizations incorporate some level of predictive analytics in their CRM infrastructure to gain a deep understanding of what customers want and to predict accurately how customers are going to behave," he says. "In the future, expect to see whole CRM infrastructures built on the premise that predicting customer behavior is fundamental. " Show some intelligence Data quality plus analytics equals actionable information that drives business processes. But how do you get it? "The future of [BI] lies in the most obvious of places--the Internet," says Gerald Cohen, president and CEO of Information Builders. "Our customers are requiring that more and more nontraditional users be able to access critical business information whether they are on the front lines, on a sales call, or on the shop floor. In the future, all relevant information will be accessed from one Web-based interface, integrating business data from multiple operation systems." Strohlein of Outsell agrees. "Outsell believes that 2006 will be the year of 'sales performance solutions' in which the confluence of CRM, business intelligence, and workflow-embedded information will finally help enterprises realize the value of CRM: making sales reps more effective and efficient while focusing resources on the most attractive clients and prospects." MERGERS AND ACQUISITIONS Many of the biggest mergers were in the fields of enterprise management, BPO, BI, and integration. Some of the more notable moves:
  • IBM acquired Ascential and DWL, strengthening its offerings in BI and data integration, respectively;
  • Talisma acquired customer interaction management expert Knowledgebase.net;
  • ERP vendor SSA Global bought Epiphany and its expertise in finance, telecommunications, and retail;
  • Aprimo acquired the enterprise management systems unit of DoubleClick; and
  • Convergys gained depth by snatching up Deloitte's finance and accounting BPO business. Contact centers and speech technology were another broad area where consolidation was a major factor.
  • Concerto purchased Aspect, taking the latter's name;
  • ScanSoft bought out speech recognition competitor Nuance;
  • NICE acquired the recording systems arm of Dictaphone;
  • Verint Systems acquired Opus Group, integrating call center expertise with the back office; and
  • Microsoft entered the VoIP market through the acquisition of Teleo. Contact Senior Writer Marshall Lager at mlager@destinationCRM.com
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