The Year in Preview
Two thousand three was a year of rebirth for the CRM industry. Vendors released more vertical applications than ever before. Hosted CRM solutions became entrenched in the market. The mid-market became the new hot target. And marketing began to get its due attention from vendors. As these trends took shape--and then took hold--it became increasingly clear that they are not fads. In fact, what are hot trends now will likely be considered business as usual by the end of two thousand four.
Enterprise CRM's Vertical Push
This year CRM users have reminded enterprise CRM vendors of one very important fact: One size does not fit all. After years of selling best-of-breed type solutions that required vast customization to meet a specific industry's unique business needs, companies like Siebel, Oracle, SAP AG, and PeopleSoft have increased their focus on offering vertical solutions.
"Vertical CRM is a no-brainer," says Erin Kinikin, vice president and research leader at Giga/Forrester Research. "Amazon.com has very different relationships with their customers than Intel or Pfizer or IBM. The tough thing is to get beyond changing the labels on the screen to enabling a valuable, industry-specific customer process."
This is exactly what SAP AG did in creating mySAP CRM 4.0, says Darc Dencker-Rasmussen, vice president of SAP's global CRM initiative. "We have leveraged our twenty-year history working with different industries in making this product, hitting the market with a product that addresses the very specific needs of those industries, focusing on end-to-end business processes," he says. SAP's CRM solution now includes vertically specific modules for 23 industries.
And SAP is not alone. Siebel has 24 vertical offerings that it has created based on the best practices it has gleaned from its more than 3,500 CRM customers. Oracle and PeopleSoft also have tailored their offerings for industries like manufacturing, telecom, consumer packaged goods, financial services, education, and the public sector. The only limit to the build-out of vertical offerings is the number of industries that deal with customers.
Although the enterprise vendors may have made most of the noise about launching vertical applications, they certainly were not alone. Mid-market vendors have also released their share of vertical CRM. Pivotal, for instance, released vertical offerings for such industries as financial services, insurance, life sciences, and real estate and construction, as well as what it calls microverticals in such areas as healthcare insurance, capital markets, asset management, and medical devices.
Kinikin says that even with all the action around vertically focused products, much more is to come. "I think we'll look back and say that 2003 was the year of the promise of vertical CRM," she says, "but 2004 and 2005 will really drive the reality and the business benefits."
ASPs Get R-E-S-P-E-C-T
While enterprise players were busy tweaking their products to fit various verticals, hosted CRM providers like Salesforce.com, NetSuite, and Salesnet were busy convincing the business world that their no-software model made sense.
These vendors have not only convinced customers of this, they are thriving while doing so. They are seeing deployments in larger organizations that would have been considered the domain of Siebel or SAP, says Sheryl Kingstone, CRM program manager at the Yankee Group. "These software products have entered the mainstream by adding rich functionality, deeper integration and customization options, and offline connectivity," she says.
Hosted CRM providers need to continue on this track, says Karen Smith, a research director at the Aberdeen Group. "For hosting and ASP models to find a permanent place as an alternative to licensing, customers must find long-term value in the solutions," she says. "ASPs must also be able to offer customers better integration and customization tools."
Kinikin notes that this may present a problem for a business model that thrives on the convenience factor. "The question now is whether CRM ASPs will lose their ease-of-use advantage in their continued quest to add functionality," she says.
Major developments abounded in the space, with Salesforce.com racking up more than 100,000 users while attaining profitability, and NetSuite releasing an integrated product for the mid-market that has all the elements of ERP and CRM.
These achievements did not go unnoticed by traditional CRM vendors. Companies like ACCPAC, PeopleSoft, and Microsoft CRM have released hosted versions of their CRM solutions. Even Siebel--once staunchly against the model--has partnered with IBM to create Siebel OnDemand, a hosted version of its CRM solution. Siebel also shook up the market with its purchase of hosted CRM provider UpShot.
"Companies like PeopleSoft, Siebel, SAP, and others will be able to deliver plenty of product and each has a war chest sufficient to make the competition interesting to watch," says Denis Pombriant, vice president and research director for Aberdeen Group's CRM division.
Siebel made its foray into the hosted space not just to compete with vendors like Salesforce.com, but also to open a new revenue opportunity in the mid-market space. Siebel is certainly not alone. Many enterprise vendors made the move into the mid-market more aggressively this year, following countless reports on the untapped CRM potential of the sector.
Perhaps the most anticipated CRM entry to date was the debut of Microsoft's MS CRM. Though there was much fanfare around the release and hundreds of resellers clamored to hop aboard what they thought was a Microsoft money train, the product did not make the huge impression that some expected considering Microsoft's other endeavors.
One mid-market move that will certainly ripple into 2004 and beyond, however, was PeopleSoft's acquisition of J.D. Edwards. The merger sparked off an attempt from Oracle to acquire PeopleSoft and a soap opera of sorts ensued between Oracle CEO Larry Ellison and PeopleSoft CEO Craig Conway, mostly played out in the media. PeopleSoft was able to close the J.D. Edwards deal without incident, and in the fall announced its product road map, consisting primarily of its Enterprise products for the upper-tier enterprise space, as well as its EnterpriseOne product (the former J.D. Edwards suite) aimed at the mid-market.
Two key mid-market players saw their share of action as well. Onyx transformed itself with the launch of Onyx Enterprise Portal 4.5 (OEP 4.5), completely rearchitected on a Web-services platform built on XML standards--the company's most significant release in seven years--and with its focus on embedded CRM that included striking deals with such major players as IBM and Reuters. Pivotal completed the integration of its MarketFirst acquisition into its Pivotal 5 product, a major release this past year, then proceeded to arrange a merger, which at press time was not finalized.
Even with all this action, huge mid-market deals for CRM vendors are very hard to come by, according to Kinikin. "Mid-market companies are inherently conservative, and we're seeing that companies are willing to wait for a vendor they think will be around for the long term," she says.
Industry watchers will certainly be on the lookout to see who can capture the elusive yet potentially lucrative mid-market CRM buyer. Perhaps in 2004 a leader will arise, be it Microsoft, an ASP like Salesforce.com, or a traditional enterprise vendor that has figured out how to scale its offering for companies with less complex needs, and even smaller budgets.
"The winners in the SMB market will be companies that can build strong partnerships, that can establish strategies that match the new buying and economic environment, and that can offer programs, products, and support that can win the hearts and minds of business partners," Aberdeen's Smith says.
The Marketing Momentum
Although there is uncertainty about who will conquer the mid-market, one thing is sure: Vendors have again set their sights on the marketing department. In the past year many vendors have released modules of their CRM products aimed at creating greater visibility into the marketing pipeline.
"Marketing's renaissance will hit full stride fueled by a renewed interest by many companies in filling the pipeline as opposed to lowering costs," Pombriant says. "The real interesting developments will not happen around traditional marketing applications like email marketing, campaign management, etc. The hot items will be applications that help companies listen better to their customers, thus gathering better information about what the market wants to buy. Look for companies that foster online communities or online-survey capture to lead."
Oracle released its Oracle Marketing this past year, and other vendors like SAP have added deeper marketing capabilities to their CRM products. Meanwhile, a few pure-play marketing solutions vendors like Unica and Aprimo continue to thrive, offering tools that deliver greater visibility into campaigns.
But as companies outsource more and more areas of IT, many organizations may keep marketing tools off-site, Kinikin says. This could mean less potential for vendors, while outsourcers continue to reap the benefits. "We see a slight trend for companies to bring marketing in-house to get better control of the customer," she says, "but marketing's big operational budget, small capital budget, and focus on creativity over process gives the outsourcers a continued place in the marketing process."
Even with all the action around the mid-market and attention towards marketing, many posit that the real gauge of the industry is overall license sales. Although a Gartner report this year noted that CRM license sales were down 25 percent in 2002, Claudio Marcus, research director of CRM and business technology at Gartner, says that going by license sales is not an accurate way to assess the industry's position.
"Enterprises are spending considerably more effort revisiting their CRM strategies and organizational readiness to make the most of existing and future CRM investments," he says, noting that dollars are going towards optimizing existing CRM solutions, not adding new ones. As a result, professional services and consulting firms are reaping the benefits. Companies increasingly are calling on them to perform data integration and other customizations, Marcus notes.
If license sales are not driving the industry, what is? Chris Selland, president of consultancy Reservoir Partners, says the widespread application of Web services will drive the CRM industry. Investment in Web services will help optimize existing CRM systems, he says, again noting that the growth will not come from new license sales, but from adding on to what is already in place. "These enhancements will have fundamental and far-reaching effects on the CRM market, from both the buyer's and seller's perspective," he says. "Ultimately, they will allow CRM to go where it always should have aimed: at empowering the customer."
Over the next year and beyond, according to Selland, Web services will be the driving force behind fitting CRM into the operations of the real-time enterprise, which he believes will be the ultimate goal of companies going forward.
Key Influencer: Web Services
Reservoir Partners recently polled more than 350 businesses to gauge how they felt Web services would affect the CRM landscape. The results show a surprising interest in Web services as the key to unlocking CRM's potential in the enterprise.
Build or Buy?
Good news for CRM suite vendors: Companies are building fewer CRM solutions in-house. A recent study by Harte-Hanks reveals a growing trend towards contracting vendors for total CRM solutions, rather than going with homegrown solutions.
Contact News Editor Martin Schneider at mschneider@destinationCRM.com