New York, Aug 16, 2000 (123Jump via COMTEX) -- The Nasdaq was virtually
unchanged the week ended August 11, 2000. In comparison, the S&P 500 index rose
about half a percent, and the Dow Jones Industrial Average rose a little over
2%. The markets' performance was slightly slower than the previous week, when
the Nasdaq increased 3%, the S&P 500 rose 3%, and the Dow Jones increased 2.5%.
Old economy stocks such as non-cyclical consumer stocks, basic materials stocks
and capital goods led the markets during the week. Some of the top gainers
included jewelry retailer Piercing Pagoda, TV broadcaster Paxson Communications
and semiconductor manufacturer IXYS.
Overall, a broad compilation of 12 economic sectors gained approximately 2.4%
during the week ended August 11. The technology sector was the third-worst
performing sector. Technology stocks gained 1.6% on the week, with software and
programming stocks rising 1.5%. An informal survey of various Internet-related
software sub-sectors indicated that enterprise application stocks, such as
Supply Chain Management SCM and Enterprise Resource Planning ERP firms rose the
most within the group. Customer Relationship Software CRM and
Business-to-Business marketplace B2B stocks declined 4.6% and 4.9%,
respectively. The week's technology sector performance compares unfavorably to
the week ended August 4, when the technology sector gained 3.5%. Software and
programming gained 6.4% that week. Despite gains by some Internet software
stocks in the past weeks, these firms have lost an average 52% of their value
since their 52-weeks highs. B2B stocks have lost the most since their 52-week
highs, averaging a 78% drop in market value. Three B2B stocks achieved 52-week
lows the week ended August 11, including Ventro (NASDAQ:VNTR) and NeoForma
(NASDAQ:NEOF).
Customer Relationship Management software is one sub-sector worth examining. CRM
is a significant business and marketing trend. Software vendors in this market
segment offer goods and services that essentially help companies in three key
ways. First, they help automate a company's sales, marketing and customer
support functions. Second, they help manage information inflows and outflows
during a time when the number of points of interaction between customers and a
company - known as the "front office" or "touch points" - have proliferated to
include e-mail, call centers, help desks, and e-Commerce/Internet. Thirdly, they
help facilitate the integration and sharing of customer related data and
profiles throughout the entire enterprise, which enables targeted marketing and
selling efforts to individual customers - a "market of one" also known as
Micromarketing. Also, a company has the ability to target the most profitable
customers, products and business - and divest the unprofitable ones.
The top- and bottom-line benefits of CRM implementation can be significant.
Joint research by International Data Corp. and the Cap Gemini consulting group
indicates that 44% of U.S. and European corporations expect to increase turnover
by 10% to 20% via CRM software; 23% expect to increase turnover by 20% to 50%.
Cisco Systems, one of the world's leading e-businesses, is a CRM role model.
Cisco has increased customer satisfaction ratings by 23%; reduced delivery times
by between three-to-five days on domestic shipments and seven days for
international shipments; increased sales force productivity and been able to
regarding-deploy 100 engineers and 600 customer support personnel to other
departments. It has realized $330MM in various cost savings. Currently, 82% of
Cisco's orders are placed online and 83% of customer support questions are
answered via Web self-service.
International Data Corp. estimated the global CRM market in 1998 to have been
$33.2bn, and for that value to grow to $90bn by 2003 - an average annual
increase of 35%. The International Data Corp. / Cap Gemini study indicates that
32% of corporations in the U.S. and Europe expect to spend between $2 to $5MM on
CRM software and implementation in the next two years; 31% expect to spend over
$5MM.
The largest CRM vendors are Siebel (NASDAQ:SEBL), Tibco (NASDAQ:TIBX),
BroadVision (NASDAQ:BVSN), Vignette (NASDAQ:VIGN), E.Piphany (NASDAQ:EPNY) and
Kana Communications (NASDAQ:KANA). Some of the largest clients of these CRM
firms include DuPont, Gillette, Microsoft, Sprint, American Airlines, Xerox, and
Motorola. Other large business software companies are also entering the CRM
space, including networking infrastructure leaders such as Cisco Systems
(NASDAQ:CSCO), Nortel Networks (NYSE:NT) and Lucent Technologies (NYSE:LU); and
Enterprise Resource Planning ERP giants such as Oracle (NASDAQ:ORCL), SAP
(NYSE:SAP) and PeopleSoft (NASDAQ:PSFT).
Oracle is currently the largest firm in the CRM space. Competitive threats are
fast emerging, though, from smaller dedicated-CRM vendors, ERP-rival SAP and
networking infrastructure firms, Cisco and Nortel. Oracle's CRM sales for FY99
were $241MM, a growth of 194%. The company attributes the strong performance to
its integrated, end-to-end solutions. Siebel is second in terms of market share,
with 20%. Nortel's Clarify division is third, with a share of approx. 6%. More
than 20 other companies are extremely active in the CRM space.
There is room for smaller competitors to enjoy success, behind Oracle and
Siebel. Regarding would-be buyers of CRM software, one financial investment
author stated that "Every company is unique, with its own product lines,
customer base and mix of legacy systems ... a dominant, Windows-like, off the
shelf CRM system is not in the cards, at least not for a while." Forrester
Research analysts also agree that this is a multi-vendor space. Annual revenue
growth leaders amongst the most highly valued CRM stocks include Oracle with
nearly 200% growth; Siebel with over 100% growth; Tibco with 83% growth;
Nortel's Clarify division, with 77% growth and Vignette, with 45% revenue
growth.
Like other technology sectors, the CRM space is hyper-competitive and
fast-paced. Siebel recently announced that it more than doubled revenues, from
$177MM in Q2/99 to $387MM in Q2/00. Net income grew from $24MM to $55MM. The
company also made public plans to enter the Web personalization space, currently
led by BroadVision, Vignette, Open Markets (NASDAQ:OMKT) and Alliare
(NASDAQ:ALLR). Siebel also announced it is to acquire OnLink Technologies for
$609MM; OnLink specializes in data modeling analysis software and
Business-to-Business B2B, capabilities such as auction software. In early July,
Siebel signed a wireless technology deal with Sprint PCS (NYSE:PCS). Wireless
Application ProtocolWAP capabilities are increasingly important in the CRM
space.
Analytical software specialist E.Piphany recently announced a 650% growth in
Q2/00 revenues, vs. Q2/99. E.Piphany acquired CRM vendor Octane in March, 2000,
and is now boasting a strong analytical software/CRM value proposition. A vice
president of the firm stated that the goal is offer the "broadest footprint in
the industry."M eta Group estimates that the market for analytical software will
grow at a rate of 111% this year, twice the growth rate for traditional,
operational, CRM software. In response to the growth, Siebel recently arranged
to integrate Informatica's (NASDAQ:INFA) analytical applications into its
eBusiness solution. Oracle is also building these capabilities into its flagship
e-business solution, Oracle 11i.
Oracle recently entered into an alliance with Cisco to plug 11i into Cisco's
networks. Oracle CRM and other e-business applications will have access to
Cisco's network routing and telephony capabilities. Eventually, the two firms
will offer an integrated infrastructure for transmitting data, voice, email,
Internet and Voice over Internet Protocol VOIP, traffic via one channel. A
Yankee Group analyst approved of the synergies and added value of such a
collaborative effort, stating that "It's easier to form a single view of the
customer when you deploy it over a single pipe."
In unfavorable news, a Gartner Group survey published on August 8, 2000, found
that e-tailers were not providing adequate customer service and responsiveness,
via Internet. "Today, most retail call centers treat customers like strangers.
Marketers are not integrating the Web site with the call center." The study
found that CRM functionality is limited on the Internet. Only 28% of Web sites
acknowledged receipt of an e-mail; 24% had instant messaging; 10% allowed
customers to track inquiries to resolution. Whether this is an opportunity for
CRM software vendors, or a weakness of their products and strategies, remains to
be seen. Nevertheless, due to poor e-service and a myriad of other factors,
e-commerce growth has been slower than expected in the U.S. and abroad. The U.S.
Dept. of Commerce found that Q4/99 retail e-commence spending was 0.6% of total
retail sales. In Canada, the number was only 0.4%. Slow e-commerce growth could
limit the growth of CRM software sales.
There are several important trends in the CRM space. One of the most pervasive
trends is Convergence. In business, convergence is the theory that different
economic sectors, and/or different types of goods and services, will evolve to
become mixed together or integrated with one another. The fusion of the Internet
with both television and the telephone are examples of convergence. In the
software sector, different types of vendors are broadening their value
propositions to include CRM capabilities. This is due to the fact that CRM is
gaining both strategic and economic importance.
ERP vendors, for instance, have made a strong push into the CRM space because of
a shift in attention and corporate IT-budget dollars, towards "front office" CRM
applications, as opposed to "back office" ERP capabilities. ERP vendors had been
successful over the past 20 years in helping companies streamline and integrate
their global back- office functions, but have been facing challenges
re-inventing themselves as e-Commerce savvy players in the hyper-competitive and
increasingly volatile "new economy". Now, however, two of the top CRM firms are
ERP vendors Oracle and SAP. Furthermore, of the top three dedicated-CRM vendors
- Siebel, Vantive, and Clarify - two have been acquired by a larger company -
PeopleSoft acquired Vantive and Nortel acquired Clarify.
Another significant illustration of convergence is the integration of the CRM
space with network infrastructure firms such as Cisco, Norteland Lucent. A
director with market research firm PELORUS Group states that "The synergy
(between networking infrastructure and CRM) comes from the fact that the
networking companies have figured out how to treat any kind of media
communication the same way you would treat a call, in terms of routing it to an
agent or whoever will do the work." Several deals or alliances have been
announced in this regard recently, including separate deals between Nortel's
Clarify, IBM (NYSE:IBM) and SAP; a new CRM unit was formed at Cisco; a deal
between Oracle's CRM arm and Lucent and a CRM unit spinoff at Lucent.
Lucent's new CRM company, announced in March, 2000, will be called Avaya,
formerly the Enterprise Networks Group of Lucent Technologies. The
organization's new CEO estimates the CRM market will grow from $114bn in 1999 to
$177bn by 2003. The company has been very active since being given a name and
management team on June 27, 2000. Avaya has formed an alliance with Siebel, has
sold its services to Bell Atlantic, introduced products in the healthcare, local
area network cable and other fields and has attracted $400MM in venture capital
from Warburg Pincus, one of the largest venture capital and private equity firms
in the world, with over $14 billion of invested and committed capital.
In July, Lucent and Oracle's CRM arm agreed to integrate Oracle's CRM software
with Lucent's billing applications and systems. An analyst with the Aberdeen
Group stated that the integration of CRM capabilities with billing software and
hardware represents positive synergy and fit. Previously, billing was a
non-revenue generating activity and/or a cost-center. With CRM applications,
though, billing call center personnel will be able to generate revenue by
cross-selling and/or up-selling products to bill payers, based on their unique
profile and past purchasing history. The Lucent/Oracle agreement will face
competition from Primal, a subsidiary of Avery Communications (U:ATEX). On
August 10, the Board of Avery decided to spin off 100% of Primal (Primal's
proposed Nasdaq listing is PRML.) Furthermore, as corporate value propositions
expand and software market segments converge, firms such as SAP, PeopleSoft and
Siebel can be expected to move into this space.
Cisco, one of the world's most highly valued companies and a leader in
e-business, launched its Internet Communications Software Group on May 23, 2000.
The Group will be Cisco's software strategy arm, with the goal of breaking down
barriers between traditional voice networks and Internet data networks. Its
customer contact platform integrates multiple channels on a single network
infrastructure, including the Internet, facsimile, e-mail, telephone, online
chat and VOIP. The software group has established relationships with CRM vendors
such as Oracle, PeopleSoft's Vantive, E.Piphany's Octane, Kana and Chordiant
(NASDAQ:CHRD). In July, for instance, Oracle and Cisco signed a deal to link
Oracle's CRM capabilities with Cisco's VOIP capabilities, in a joint effort to
manage communications via Internet.
A further source of convergence is data warehousing and analytical software. An
analyst with International Data Corp. stated that successful and effective CRM
solutions must "go beyond automating customer interaction processes to
automating the data warehousing supported processes of customer data
integration, customer data analysis, and customer interaction personalization."
The CRM data warehousing market is expected to grow an average annual rate of
75% to $20bn in value, by 2004. However, there are many complexities involved in
achieving success in the warehousing and analysis space. Integrating disparate
applications, media and legacy systems is the first challenge; interpreting raw
data into useful and coherent output that can be understood by managers is
another issue. An International Data Corp. manager goes on to state that
"Companies that deliver CRM services are well suited to help organizations
overcome these challenges and will have plenty of opportunities to do so."
International Data Corp. estimates that the proportion of warehousing/analysis
revenues derived from consulting and other services, as opposed to software
license fees, will increase by 15% by 2004.
Another significant trend is that firms are increasingly targeting mid-sized
companies. The mid-market for CRM software is estimated by IBM to be worth $10bn
in 2000, and to grow at a rate of 23% between 2000-01. CIBC World Markets in New
York predicts even a higher growth rate for the mid-market - predicting 65%
annual growth in the CRM mid-market and 53% growth the high-end CRM space.
Siebel is working at entering this segment. Siebel's eBusiness 2000 solution has
been "optimized" for mid-sized business owners, i.e. it includes fewer
capabilities, but is less expensive. The company has formed an alliance with IBM
to focus on companies with between 100 to 1,000 employees. However, companies
such as Onyx Software (NASDAQ:ONXS) and Pivotal (NASDAQ:PVTL) already target
this segment and have strong market presence. Onyx, for instance, specializes in
CRM applications for the Microsoft NT and BackOffice server platforms. Onyx's
value proposition includes ease-of-use, minimal training, low cost and fast
deployment time. This combination has yielded high customer satisfaction
results.
Many analysts feel that CRM solutions from large firms such as Oracle or Siebel,
are not suitable for mid-sized firms. They believe high-end applications, or
even scaled-down versions of high-end software, may be too complex, too
expensive and/or too difficult or lengthy to install. An analyst at Yankee Group
likened the situation of mid-sized firms using high-end CRM applications to
"drinking from a fire hose." Nevertheless, large CRM companies are trusted
brands with goodwill and name recognition. Further, they offer a one-stop-shop
for versatile functionality. Also, they enable mid-sized companies to "grow
into" more complex applications, when the client grows beyond the confinements
of smaller-scale software.
One important strategy used by Siebel and other software vendors in the
mid-market is to employ Application Service Providers ASP, to distribute their
software and to reduce costs for smaller customers. ASPs enable firms to rent or
lease software via the Internet, through a standard Web browser. In this way,
ASP clients can avoid the costs of installing software on individual PCs,
maintaining and upgrading the software, etc. However, large businesses also
represent a market opportunity for software sales via ASPs. An economics
professor at Columbia, who is a former Deloitte executive, believes that among
the first purchasers of software via ASPs "will be the Global 2000 ?" i.e.,
large enterprises with multiple geographies that expend a large amount of money
on IT. These are the companies that can realize the most significant savings by
having software hosted via the Internet by an ASP.
The technology revolution and the New Economy are the most interesting,
lucrative and volatile pursuits for many investors and analysts. Over the past
five years the Nasdaq Composite Index, arguably the world's main technology
indicator, has significantly outperformed the rest of the U.S. economy as
measured by the S&P 500 and the Dow Jones Industrial Average gaining. However,
the development of the New Economy will be slower than many anticipate due to
technological and technical challenges and a myriad of other factors. In the
long run, though, all business will adopt the strategies, processes and
technologies of e-business. The enormous benefits and potential of
Business-to-Business e-commerce, Customer Relationship Management, Enterprise
Resource Planning and Supply Chain Management integration, will make this happen
for both large and small companies. The next chapter of e-Commerce Marketplace,
Electronic Business will conclude the discussion of recent developments and
strategies in the Customer Relationship Management software market. Future
chapters will examine other areas of the e-business boom, including B2B, SCM,
ASP, middleware software and XML. |
