The Looming CRM Shakeout
Mon Feb 3, 1:45 PM ET
Erika Morphy, www.CRMDaily.com
Moribund industry sales, an economic recovery that seems to be more mirage than reality, a looming war in the Middle East, and, finally, the entry of category-killer Microsoft (Nasdaq: MSFT - news). The time seems ripe for a shakeout in the CRM industry.
To be sure, with every dip in the purchasing cycle over the years, pundits have declared that consolidation was at hand -- just as they did in the ERP (enterprise resource planning) industry post-Y2K, and in just about every other software category at particular low points.
But there is little doubt the ingredients are now in place -- at least for a readjustment. Will CRM mirror the evolution of other sectors, such as the auto industry, and end up with 10 or so giants serving the entire marketplace? Or will the CRM shift take place through a series of mergers, partnerships and occasional bankruptcies that produce a new lineup of different, but not necessarily many fewer, players?
A year ago, the former scenario seemed quite unlikely. However, with the entry of Microsoft, a growing chorus of analysts indicates this indeed will be the shape the industry will take, say, five years down the road.
Blurring Lines
There is one other scenario to consider. And that is the possibility -- some might say probability -- that five years from now the CRM industry will be completely unrecognizable and may even be called something else entirely. The fact is, business process management is emerging as the new focus of business applications, replacing ERP, CRM, SCM (supply chain management) and other disciplines.
"Given the economy and stability of some of the CRM vendors, ultimately there will be a shakeout," Gartner research analyst Beth Eisenfeld told CRMDaily.com. "The software vendors that survive will have to reinvent themselves into more service-oriented companies and products." Eisenfeld predicts that the industry lines between CRM, SCM and ERP will continue to blur.
This process of folding once-discrete applications into a larger workflow is already under way within the CRM industry, if only for economic reasons. Applications that were once considered stand-alone within the CRM space -- for example, e-mail marketing or workforce management -- increasingly are becoming parts of larger suites.
"Eventually, the Oracles and E.piphanys of the CRM world will be providing more and more CRM functionality that simply will not exist in a stand-alone format," Gartner research director Adam Sarner told CRMDaily. If the smaller vendors do not fail outright, and if they are not consumed by larger players, then they will have branched out into other areas. Sarner cited SAS Institute as an example. An analytics vendor by birthright, it is edging into campaign management and execution capabilities.
Bridging the Gap
It is a given that the SMB (small and mid-size business) end of the CRM market will undergo significant change, with many, if not most, vendors merging or going out of business. If it is any consolation to these companies, the high-end players also are grappling in their own survival games.
SAP (NYSE: SAP - news), Oracle (Nasdaq: ORCL - news) and PeopleSoft (Nasdaq: PSFT - news) will continue to fight Siebel (Nasdaq: SEBL - news) for market share -– and now that big projects have become a relic of the past, the stakes are even higher with each client win.
The buying decision for companies has certainly gotten more complex: Before, Siebel was the premier vendor, with the ERPs a second-best alternative -- at least for CRM functionality. Now, though, the ERPs have largely closed the CRM functionality gap. And in these tight budgetary times, the ERP vendors have the natural advantage of providing a company's back-end financial, human resource and other legacy systems -- and they are pushing the argument that it is much cheaper to integrate a CRM system into an already-existing IT backbone. In theory, at least.
Slaying the Dragon
None of the ERP vendors has slayed the integration dragon yet, despite claims to the contrary. There are very few all-SAP or all-Oracle shops out there, in fact. Integration capabilities will play a key role in any industry consolidation.
"Each of these three large companies have varying degrees of experience and expertise in integration on CRM implementations specifically," said Louis Columbus, senior analyst at AMR Research. "The one who embraces the chaotic nature of systems, data stores and legacy applications will win," he told CRMDaily.
Indeed, this appears to be the route Siebel is taking via its UAN (Universal Application Network) -- an integration tool to help users knit together separate applications and systems -- and through its partnerships with IBM (NYSE: IBM - news), announced last week, and Microsoft, unveiled last year.
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