CRM has not been on the best of terms with the end-user community over the past five years. According to Chris Pang, analyst at research firm Gartner, it has felt the impact of the post-Year 2000 slump in IT spending much more so than either the ERP or supply-chain management sectors. Before the turn of the century it was growing at a rate of 200 per cent a year. But it has since hit rock bottom, seeing negative or less than one percent growth between 2002 and 2004.
Pang put this down to a combination of the economic downturn and fingers being burned.
“There was a lot of hype surroun-ding what users could do with CRM,” he said. “People thought it was all about the technology and not the business process. To get the benefit, it needs to be a marriage of both.”
One of the most common mantras of any CRM vendor is that their package adapts to the business and does not force the business to adapt to its own limitations. Six years ago this was not true, but the vendors have now produced some software that really can be adapted to meet the needs of the customer, according to Tom Pringle, an analyst at Datamonitor’s call centre and CRM unit.
“CRM was already seen as very difficult to configure and there was a lot of complex customisation involved,” he said. “But now we are seeing much more focus on making it simple. Salesforce.com and Microsoft make a big deal about the fact that their systems can be customised. I think it is much easier to do that now than it was in the past.”
The CRM vendors do seem to be convincing more users that it is high time to at least dip their toes in the water once more. Pang estimated that growth in licence sales for some vendors had increased by about 90 per cent in 2005, which is a massive improvement on the 2004 estimate of just 0.8 per cent. (It should be emphasised that this is an approximate guess. It is extremely difficult to collect accurate licence numbers.)
CRM does seem to have turned the corner in terms of adoption, Pang added. But he is not sure that anyone is making very much profit out of it at the moment. Nor should they expect to for some time to come, he said.
“The volume of deals being done is increasing, but because of the intense competition in the market the price per seat is depressed,” he claimed. “We don’t expect that to change for the next four or five years.”
Gartner’s projections make pretty gloomy reading for the clutch of vendors involved in this market. And this collection includes its fair share of heavyweights.
As well as the relatively new entrants with their on-demand offerings, such as Salesforce.com, NetSuite, SalesNet and Rightnow, Microsoft has come in with Dynamics CRM 3.0. Other big guns include the likes of SAP and Siebel, which is now owned by Oracle, and arguably more powerful than ever before.
Most of these organisations are focused on the larger customers, although Microsoft is very much targeting the mid-market where it is also likely to come across competition from Sage, FrontRange with Goldmine, and a range of less well-known players such as Maximizer and Software Sculptors.
But is there room for so many players? Pang thinks so. Even though the top-end is crowded, the stakes there are high and the players involved have significant resources. The mid-market is less well exploited and arguably has a more latent need for profess-ional CRM. Previously, the focus had been on larger organisations. Now it is moving to the mid-market, according to Pringle.
“When CRM first emerged as a technology it was very high-end,” he said. “Only those that had a really compelling need for it and that could afford it, came in. It’s a bit more democratised now, and much more for the mass market. The mid-market – between the 1,000-seat and 3,000-seat sector – is the most exciting now.”
This is probably where the main opportunities will lie for resellers that are interested in CRM. Jason Nash, partner solutions market manager for CRM products at Microsoft, said vertical market specialists that target specific industries, such as construction, finance and retail, have enjoyed particularly good success rates. He also believes there is room for the ‘classic’ partner that wants to get more creative about solutions selling.
“A classic Microsoft partner may be able, for example, to install an Exchange Server, and I would argue that this is relatively simple,” Nash said. “But CRM is much more complex because you have to understand the processes and how to put them into the software.
“CRM is a journey, not a destination. It covers marketing, customer services and sales. You usually need to take a phased approach because you’re not going to want to do all of that on day one. You have to talk about the problems in the business.”
So it is not just for anyone then. The successful resellers so far seem to be ISVs that have taken the CRM platform and adapted it to their target industry, after having identified a need within it for this type of application. The need does seem to be growing in some areas. As Nash notes, recent figures from Internet Measure Research Group on the online retail sector suggest that online sales rose by more than 30 per cent last year, and this growth can be expected to continue in 2006.
“There can no longer be any doubt that the internet is a major part of the retail landscape,” said Jo Tucker, managing director of IMRG.
As more shoppers buy online, Nash suggested that they will need to find some way to manage their increas-ingly diverse and widely distributed customer base. Increased competition in other areas of the market means that looking after customers has become more important than ever.
Specific vertical needs do not necessarily exclude ‘classic’ partners from the opportunity, according to Nash. “CRM is a good bridge from selling hi-tech ‘baked beans’ to something that is more service focused and high value,” he said.
Gerry Carr, CRM marketing manager at Sage, also believes that CRM might help resellers move into higher value areas. “They can make a living delivering the box and a standard deployment,” he said. “That’s where we are seeing a lot of our business.”
But it may not be easy to bridge the gap between specialist and generalist markets. Peter Wiggins is managing director of Software Sculptors, a small software house that has been trying to get its CRM package, Flightdeck, off the ground in the wider market for the past two years. It has signed up a few partners and had some success in certain markets, but without necessarily choosing where to focus.
“It’s a horizontal opportunity, but inevitably when you get some customers in place and build a solution for them, you are better placed to sell to that particular market,” Wiggins said.
Having picked up customers in manufacturing and accountancy, Software Sculptors has subsequently picked up more in each area. But efforts to focus on marketing agencies and on other areas have reaped no rewards. So success in the CRM space may be a matter of having a very clear focus and knowledge of what is required in a particular vertical market right now, and adapting a solution from a base platform.
Carr agreed that the best way to develop a profitable business might be to focus on receptive verticals.
“There is a certain degree of commoditisation in undifferentiated CRM tools,” he said. “It is difficult to differentiate yourself in the horizontal market, and we are certainly interested in talking to partners with vertical market specialisaton. We see that as the next stage of development in the mid-market.”
The alternative is simply to go where the wind blows, or ‘make the market’ by building up awareness to the point where curiosity gets the better of enough SMEs to drive them to the reseller’s door. But while Microsoft and others are trying to do this to a limited extent, there does seem to be an underlying realisation that without any kind of specialisaton or vertical market knowledge, resellers just will not be able to make a success of CRM sales.
FrontRange Solutions, publisher of the Goldmine CRM system, probably has more experience of working with the channel than just about any other vendor currently in the UK market. Andy Wright, EMEA director of channels at the firm, told CRN that an increased need for connectivity and integration with other systems means that skilled partners are requisite for vendors in this market – and it is certainly not a market that everyone can be involved in.
FrontRange works with about only 100 partners in the UK. They are just about all specialists in sales and marketing business processes, with some having vertical market knowledge as well. “Our approach is selective, not acceptive,” Wright said.
“I’d rather have a highly tuned, professional partner community than a blanket recruitment that enables everyone to sell CRM.
“A lot of customers don’t understand what it is and that it covers marketing, sales, customer services and the analytics behind it all. Some of our partners have vertical market skills, but they also need a fundamental knowledge of how the sales and marketing process works.”
Without being able to add extra and distinct value, it is hard to see how resellers make money from this market anyway. As Pang points out and Gartner’s figures indicate – while licence sales are rising at a healthy pace, the value of the market is increasing at a much slower rate.
Wiggins said: “Some of the resellers we have spoken to say there is just not enough margin in it, and nothing to differentiate CRM products. If you can adapt it to a vertical market, you may be able to sell into that market. But I don’t know whether it is possible to make enough doing that.”
Vendors know that they need to make their software adaptable, so that it can be tailored to fit customer needs. But they are also trying to make it homogeneous enough to be appealing and adaptable to all markets. This is something that can be configured to suit specific industry requirements, but is not so complex that it needs in-depth and costly bespoke work. Without adaptability and the assistance of a specialist, they cannot hope to appeal to the more receptive vertical markets. Without mass appeal they cannot hope to achieve any critical mass.
But there may be a more fundamental problem in taking CRM to the wider market: the mentality of the smaller business.
“People are starting to talk about it, but for more companies it is a nice-to-have, rather than a priority,” Wiggins said. “They see it being qualitative, rather than quantitative. There is a strong business case if you look at areas such as referral programmes and the benefits of not letting leads go cold and maintaining customer loyalty, and that’s easy to demonstrate, but some customers still see it as a luxury.
“You can’t run a business without an accounting system, but you can run it without CRM. You have got to turn it into something that costs you money every day if you don’t do it.”
Wright likened the two requirements to aspirin and vitamins. “You don’t necessarily need the vitamins, even if you know that it’s the right thing to do. But if you’ve got a headache, you need an aspirin,” he said.
It is not going to be easy for the CRM vendors to break into the mass market. End-users, even in the SME market, may be starting to show an interest in automating the sales and marketing processes once again. But how many will revert from traditional ‘carrot and stick’ incentives and motivational techniques to IT-driven solutions remains to be seen.
Analyst Datamonitor has estim-ated the global market for CRM to be worth $5.5bn last year, and said that $600m of that – about 11 per cent – was derived from hosted services. This ratio is sure to increase, Pringle said.
“The on-demand sector is a very important part of the market,” he said. “It offers a greater level of flexibility and some of the largest companies are using these services now.”
But Pringle agreed that a good deal of market education needs to take place for both CRM and the hosted or on-demand model before we see any rapid shift from the server-based-on-premises solutions. Pang predicted that the latter will dominate for the foreseeable future. Gartner estimates that on-demand providers have about five per cent of the market.
Pang does not expect this to move to much above 10 per cent in the next few years.
“It is not going to be a complete revolution,” Pang said. “Most CRM users are large firms and their requirements mean that it really has to reside on-premises. Hosted solutions are coming into the mid-market mainly. In larger organisations they tend to be used mainly for pilot projects.”
While Salesforce.com and others are growing very quickly, they are starting from a smaller base, so CRM resellers should not be too concerned by their presence. However, more customers are aware of the hosted option now and may expect it to be on offer. Therefore, it may be something all vendors and their partners need to offer for prospective business.
Salesforce.com itself is very confident about its progression in the market and is currently selling direct, with a series of consultancy partners such as Accenture and Deloittes and other smaller specialist firms, and a telesales operation in Dublin. European alliances director at the company, Steve Bridge, told CRN that working with reseller partners is not out of the question in the future, but for now, the company is sticking with its present model.
“Demand for on-demand or software as a service is growing and it’s in the mainstream now. There are none of those questions about security and scalability now,” he claimed.
It is worth nothing that while it has an enterprise image not all Salesforce.com customers are large firms. It lays claim to 351,000 users in 19,000 companies: an average of less than 20 users per customer.
However, resellers of server-based solutions should not be disheartened, FrontRange lays claim to having 1.7 million users worldwide, so Salesforce.com has some ground to cover just yet.
Datamonitor (020) 7675 7000
FrontRange Solutions (0118) 938 7300
Gartner (01784) 431 611
Microsoft (0870) 607 0700
Sage (0845) 111 7733
Salesforce.com (0870) 351 5472
Software Sculptors (01743) 281 940
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