The Year in CRM: Stormy Waters
The year 2001 will be remembered as one of difficult decisions and uncertain prospects. Even as CRM moved to entrench itself more deeply in the business of doing business, massive IT cutbacks and serious soul-searching in both new and old economy boardrooms meant no free passes for CRM cheerleaders. "We had a period with the run up to Y2K and a strong economy that was a little bit like drunken sailors on liberty spending money left, right and center on anything that comes along," says John Dillon, president and CEO of CRM application service provider, salesforce.com.
Yet the tough decisions posed to CRM leaders did not mean the end of an era. Whether fortuitously or by design, CRM vendors responded to increased scrutiny with a flurry of new approaches to make CRM work better and faster. "What's happened is a clear recognition that there's something wrong with the current business model where there's a sales cycle that takes six to 12 months, the contract is measured in inches, and the implementation might take 24 months," Dillon says. The market has attempted to answer those charges with a combination of vertical market packages, rapid implementation promises and Web-delivered services with none of the approaches a clear winner over the others.
According to market numbers from Gartner, however, the combination of new approaches has kept the CRM market growing. Gartner expects worldwide CRM license revenues in excess of $5.6 billion, up from $4 billion in 2000. That 42 percent growth rate represents a significant cooling from 1999 to 2000's 89 percent pace, but still represents a significant amount of new and ongoing spending.
It also may reflect more CRM power per dollar than in previous years. "One of the things we've seen [this year] is that vendors will slash prices up to 20 percent, discounting more this year than they would have normally," says Rob DeSisto, vice president of Gartner's CRM practice.
Siebel's Vice President of Internet Products Andrew Zoldan says that the absolute spending and continued growth has firmly legitimized the goals of CRM. "2001 is about the acceptance of investing in CRM and customer centricity as a principal focus of a company," Zoldan says. "CRM is coming into its own. It's not an obscure set of business processes you can optionally use."
But those benefits are not being shared equally, as smaller, point-solution CRM vendors began to fall by the wayside. "Two years ago, users would have taken the risk [on a small provider], but now they tend to sacrifice bells and whistles for stability in the vendor," DeSisto says.
Customers may get more for their money, but they are asking more in return, including increasingly pointed questions about the costs and benefits associated with CRM projects. "There is a redoubled effort to make sure there is going to be an appropriate ROI on any investment made," says PeopleSoft CRM General Manager Stan Swete. "As a project team internally, you now have to do a lot more legwork to explain [to management] how these systems pay off." Although Swete says the changes have not materially affected the velocity of PeopleSoft's CRM deals, he does say that project cycles are now managed with greater "rigor" between his company and a client's CRM team.
Adam Klaber, managing partner of PricewaterhouseCoopers' CRM practice, says that the convergence of e-business strategies and platforms has done a lot this year to help the cause of CRM. "People no longer wonder what e-business is--it's now the components of CRM or supply chain or an employee portal," he says. "Twelve to 18 months ago, it was very typical to be doing a CRM vision [for a client] while there was concurrently an e-business strategy going on as a separate effort, which would make no sense."
A Game of Equals?
Particularly for traditional CRM functions such as sales and service, feature bullet lists have faded from prominence as the basics become best practices understood and adopted by most serious CRM vendors. "The gap on functionality has really closed between Siebel and a lot of the other players in the market," says AMR Research analyst Kevin Scott, which he says has allowed competitors such as Oracle, PeopleSoft and SAP to merit serious consideration outside their captive existing client bases.
That's just as well, according to Forrester Research Analyst Bob Chatham, who says buyer's fatigue had become a real problem. "I've seen clients completely overwhelmed and uninterested in the differences between vendors."
Consolidation continued to play a role this year in leveling the playing field, as notable midmarket developers Interact Commerce and YOUcentric gave up their independence to backoffice specialists Sage and J.D. Edwards, respectively. "Consolidation has gone on as everybody expected, and I think there's going to be a whole lot more of that, as it should be," says Susan Phelan, president of CustomerCentric Solutions, a division of analytics vendor SPSS. Although her company recently partnered with Siebel, she sees acquisition as the current preferred tool of the CRM vendor. "It's now about ownership."
"As the economy turned down, it became very clear that the skills in companies that were on the way up are not the skills that are going to survive in companies on the way down, and the market has really consolidated," says Mark Barrenechea, Oracle senior vice president of applications development. He also believes the shakeout has made CRM as a space easier to discuss and analyze. "Every ERP player has now, finally, made their CRM decision. From a definitional standpoint, 'What is CRM?' is not expanding as rapidly and--like ERP is well defined--CRM is becoming well defined."
Even Siebel's Zoldan concedes that the relatively unflinching commitment of established enterprise software vendors has played a major part in ensuring that CRM has not diminished during the technology contraction. "[Before], most of our competition was much smaller than us, but we're now seeing strong, powerful, successful software companies saying 'CRM is our main commitment for the next couple of years,' and that's a sign of viability," he says.
Now that the CRM movement has both consciously and unconsciously started to project a fairly clear view of the world, experts say that the time has finally come when companies see how CRM can help improve customer relations and the bottom line. "The whole industry over the last several years has recognized that interruptive customer communication, characterized by broadcast advertising or [phone calls] during the dinner hour isn't very effective," says E.piphany Vice President of Market Development and strategy Paul Rodwick. He says that realization has spurred the industry to place a greater emphasis on applying analytics to create just-in-time selling opportunities during inbound customer contacts.
As companies look to grasp the concept of finely measured individual or small-group customer profitability, CRM implementations are taking the point as the means to that end--a trend that became a surge thanks to the year's shaky economic prospects. "We're seeing a desire to reduce the acquisition cost of customers and more of a move to develop with the base they already have," says Annuncio Vice President of Marketing Kim Weins. She believes the severe shakeup of the online advertising and marketing players looms large as part of this profitability quest. "Companies are clamping down more
on what they're willing to pay, which puts price pressures on advertising and creates pay-for-performance models. It's a continuing phenomenon and it makes sense because the [customer acquisition cost] levels were unsupportable."
To Market, To Market
Marketing automation and customer analytics, increasingly thought of as logically connected instead of discrete processes, were the general consensus choices for the hot CRM topics of the year. "We're still projecting at least 50 percent year over year growth in the marketing [automation] space," says AMR's Scott, confident that the continuing process of integrating analytical insight into CRM processes will give the marketing component the ROI it has often lacked in practice.
Yet despite the intense interest, many marketing and analytics-focused CRM vendors have not fared well individually in the marketplace. Even high-profile firms with established customers, such as E.piphany, are surviving rather than thriving in the current economic climate. "Analytic vendors are clearly getting hurt," says Sheryl Kingstone, program manager at research firm Yankee Group. "The problem is, there're so many solutions vendors, and the delivery models are still maturing."
Gartner's projections indicate that 2001's marketing automation spending totals over $1.1 billion. As the strongest growth area in CRM, however, it will endure the same gold rush/back-to-reality process that other endeavors have faced. Analytics also faces its onset of obstacles. "Analytics is a strong emphasis, but it's the mature company that has a lot of data that can sit there and understand the analytic [results] and apply it to everything from marketing to sales to service," Kingstone says.
"I don't think our earnings per share has anything to do with how interesting marketing automation is," Rodwick says, whose firm was involved in a multibillion dollar paper acquisition and flirted with share prices of $250 before the tech collapse. "Heavily investing in growing markets and growing internationally was the right thing to [do]."
Marketing automation vendors weren't the only companies that had issues this year. Analysts were divided on whether Siebel's delayed release of its Siebel 2001 front-office suite represented a setback. "The story in 2001 that wasn't was Siebel 2001. The problem was development issues--it's not easy to move something over from client/server to Web-based," says AMR's Scott. Others, however, felt that the lag was simply business as usual.
2001 was also a year in which some aggressive mergers withered. The verdict of failure is all but inked on Nortel Networks' purchase of Clarify, as Nortel's CRM efforts became invisible behind a wave of staggering corporate losses. Unconfirmed reports as this issue went to press have Nortel selling the unit for between $200 and $400 million, a substantial discount from the $2 billion value of the purchase. "We're excited about the product still, but they don't have the funds or the mindshare in Nortel to build out. In order for it to really survive, they're going to have to sell it off," Scott says.
"The management team vision fell apart, then the economic downturn came," Kingstone says of the struggling CRM division. "Does it mean their vision [of CRM driven by telecommunications] was wrong? No, I just think they are having a hard time executing."
Smaller consolidation efforts, such as the acquisition of Digital Archeology by Delano Technology that closed in late 2000, also fizzled. The $87 million dollar merger was to bring together nimble development efforts in e-business, marketing and customer analytics, but the company's stock price plunged to mere pennies as the company fired its CEO, president and vice president of marketing amid major declines in revenues and an onslaught of shareholder lawsuits. Scott says that the tail end of the heated IPO market and the seemingly insatiable thirst for Internet technologies may have blinded the company to its limitations. "They were trying to be too many things to too many people--a platform for systems architecture, a CRM vendor, and a data management and business flow [provider]."
Application Service Providers (ASP) touted themselves as the ultimate CRM problem-solvers in recent years. But the technology collapse as well as casual observation made it abundantly clear that the universal "software as a service" model would not find universal traction for CRM customers.
"What I'd like to believe is a trend is delivering these applications as Web services so the technology stack is something the customer doesn't have to worry about. The startup's time-to-value is 'soon,' and the cost of ownership is 10 to 100 times lower," Dillon says, whose salesforce.com still gets high marks from analysts in terms of its potential for small and midsize companies. But others found that ASPs were an inferior delivery platform. "We had an ASP offering ourselves and struggled with the same issues--where's the profitability with these models?" Weins says.
"It didn't happen, and I have no idea why it didn't happen, but it hasn't happened for two years," Zoldan says. "We were an avid supporter of people who wanted to get into the ASP business and use our software, but we found very little uptake. CRM through ASPs was the non-event of the year."
Dillon charges that many of the old-school applications that tried the ASP model attacked the problem with the wrong tools. "It didn't address that the software we're releasing is too expensive and hard to install and support," he says. "The early vendors were just moving the problem to their building and hiring different people to work on the problem, but it was the same old software the customer experienced difficulties with."
Oracle, which has made much of its promotional online applications and hosted services, still holds out hope for hosted enterprise CRM. "Many folks looked at the ASP model as a sprint, but this is going to be a 26.2 mile race. At Oracle, we are now hosting over 15 percent of our implementations today, and that number is steadily rising," Barrenechea says.
The ASP collapse hasn't meant the end of Web- and Internet-based CRM, however. While the year may have been lousy for the network infrastructure companies themselves, the fact remains that companies continue to wire more seats than ever, and the trend is to deploy more CRM components to more employees through both client/server and Web-enabled applications. "I think that classically, CRM solutions have been implemented around the focused call center operation or a selling organization, but that's evolving into a desire to have an integrated view of customer information wherever it exists in the enterprise," says PeopleSoft's Swete. SAP's Director of CRM Communications Jon Wurfl echoes that sentiment, claiming that over two-thirds of all data relevant to CRM processes is now collected outside the traditional CRM sales-service-marketing operations.
Demand Chain Dud?
As CRM vendors struggled to recast themselves as providing immediate, tangible benefits, the concept of "demand chain optimization" began to appear, casting CRM technology as an end-to-end way to optimize the flow of goods, services and money from the point of production through the service process. But nebulous definitions and even more nebulous examples of the demand chain in action kept the idea from causing any real change in the way companies attack their customer-facing problems. "It's a good idea, but it's hard to bring the buy side and sell side together...it might be the story of the year in 2004 or 2005," Scott says.
"I think it's great in concept, but I think intergalactic space travel is a great concept. I'm not sure the return on investment is there, or as an industry, we can deliver it," Dillon says. "I'm not sure the cost of achieving that optimization as promised will be easy to afford at this stage."
At least as far as the demand chain efforts have included extending CRM visibility to partners, DeSisto sees a strong trend. "Siebel, to its credit, in 1999 saw this business issue popping up, and it is now one of the fastest growing products in Siebel's portfolio," he says. "It will be the battleground over the next three years: 'How can I extend these [customer] strategies through the demand chain?'"
While the CRM theorists go on about demand chains and the "extended enterprise," wireless CRM efforts remained largely stalled. "We keep predicting 'the year of the wireless application,' and I don't think it's here yet, and we're all disappointed in that," Dillon says.
DeSisto says that the lack of wireless traction is just one component of a larger trend, the neglect of the mobile workforce. Wireless has not solved their problems, and he believes that technology vendors and sales managers are rapidly forgetting how to use the technology that helped the field before wireless was an over-hyped option. "In the mid '90s, before the craze of the Internet, the big architectural issue of CRM was how to support the mobile user, but if you look at 2001, Siebel is the only [enterprise vendor] that supports them," he says. "Thinking the Internet was going to solve the nomadic salesperson's problem was a big mistake."
Although CRM vendors are eager to assert wondrous changes to come, with some hazy economic prospects and the ongoing maturation of CRM concepts, watch for 2002 to build on familiar themes. "We predicted four things that would grow: analytics, collaborative commerce, mobile CRM and self-service, and I don't see the predictions changing much in the upcoming year," Kingstone says.
That's not to say that concept of CRM has stagnated. It has simply come to terms with what it is going to be when it grows up. Chatham says, "CRM hit midlife...it got burned a little bit but is smart about some things in life and not completely worn down, and [it's] still optimistic about the next 50 years."