Customer Relationship Management (CRM)

A dissection of the CRM market.

Customer relationship management (CRM) is considered an important tool for survival in a bad economy. Such systems are designed to integrate and automate the sales, marketing and customer service processes within an organization. As companies try more and more to focus outward toward customers and partners, CRM systems are expanding to include a new breed of collaborative, Web-focused infrastructures.

The goal of CRM remains the same: To help companies get the maximum value from each customer relationship. But some areas, like Web-related CRM implementations, are still lagging. In a recent Yankee Group study, only 55 percent of respondents were offering customer service and support functions on their Web site. "If your site currently does not have any service and support functions and you’re trying to provide e-commerce functionality," the report insists, "you simply must add support functions to your site."

Because 46 percent of survey respondents indicated that their management did not consider the Web to be important to their overall business strategy, however, getting management support for Web-enabled CRM remains a challenge.

Market Movers

Oracle
January 2002: Oracle announces Fast Track training program for CRM implementers.

Our take: Many companies are so frustrated with their existing CRM systems that they refuse to make any new CRM investments until they manage to get their current systems running properly. Oracle wants to regain customer confidence and, in turn, free up those technology budgets for more spending.

Siebel Systems
November 2001: Siebel releases Siebel 7 eBusiness Applications Service.

Our take: Customers have been eagerly awaiting this new release for nearly a year. Its most significant element is a new, much-needed thin-client architecture. Most analysts agree that, with Siebel 7, Siebel is still the CRM leader.

KANA
February 2002: Following the recommendation by KANA's board of directors, stockholders vote against a proposed $38 million to $45 million preferred stock financing at $10 per common-equivalent share. Immediately following the stockholder vote, KANA elects to terminate the share purchase agreement with Technology Crossover Ventures.

December 2001: KANA announces a one-for-10 reverse stock split.

November 2001: KANA secures up to $55 million in equity financing consisting of an agreement for a private placement from Technology Crossover Ventures.

Our take: At a time when venture funding is in great demand, it's highly unusual for a company to reject it, which is exactly what KANA's board of directors encouraged after agreeing to the funding only three months prior. KANA is in a strong financial situation, and its customer base represents many of the top online players. Its willingness to forego additional financing is a sign of intelligent, level-headed leadership.

PeopleSoft
January 2002: PeopleSoft acquires the intellectual property and certain assets of Annuncio Software.

Our take: PeopleSoft wants to be considered a major player in the CRM market. The Annuncio acquisition helps fill a weak spot within PeopleSoft's own technology: marketing automation and personalization. Companies should wait until the integrated, PeopleSoft-branded solution has been proven.

Amdocs
November 2001: Amdocs completes its $200 million acquisition of Clarify assets from Nortel Networks.

Our take: Nortel Networks acquired Clarify in March 2000 for $2.1 billion in Nortel Networks common shares. Selling most of its Clarify assets for only $200 million in cash is more a sign of Nortel’s financial woes than any weakness in Clarify's CRM technology. Let's hope Amdocs can do a better job of exploiting CRM within the company's focus area, the communications industry.

CRM and ERP: New Friction
CRM exists within the larger umbrella of ERP systems, broadly defined as application software that manages specific parts of a business. However, CRM and ERP are developing a peculiar, somewhat adversarial chicken-and-egg relationship. According to Dataquest IT Services, CRM application sales are now the top software application in the world, having surpassed ERP applications in 2001.

Responding to the new push for customer-centric organizations (rather than the process-centric organization in which ERP systems thrive), many ERP vendors are attempting to downplay CRM's importance while shuffling to add this same technology to their own product offerings. Customers should be aware of this underlying tension when shopping for solutions.

Whoa There, Nelly!

Early CRM adopters often jumped in head first, burning up large chunks of corporate cash without taking time to analyze the potential business impact and ROI of their investments. Facing increasingly harsh economic realities, the second wave of CRM customers have slowed their purchasing decisions.

In fact, more than 90 percent of META Group’s clients are examining or re-examining the financial justification for CRM, taking steps back to develop hard business cases. CRM vendors are responding to these longer sales cycles with substantial product discounts as deep as 60 to 70 percent.

Still, META Group’s Liz Shahnam advises companies to keep their heads on straight. "Savvy organizations should still evaluate the opportunity cost of not making CRM investments impulsively," she explains, "because implementation and integration expenses, not the license fee, represent the bulk of CRM spending."

Applications Suites: Buyer Beware
Until recently, CRM adopters typically built their environments by piecing together best-of-breed products for each CRM-related function. Major CRM vendors are working to change this by providing single, integrated CRM solutions, or applications suites. Often these suites are based on rapid acquisitions and OEM agreements rather than lengthy in-house technical development.

Global 3,500 Firms …

… with CRM installations underway or complete: 37%

… considering or piloting CRM projects: 45%

Source: Forrester Research, 2001

According to Gartner's Michael Maoz, customers should be wary of jumping on the bandwagon too soon. "Through 2003," notes Maoz, "the immaturity of enterprise application architectures and the suites themselves will make reliance on CRM suites a poor or even dangerous standalone solution." Nevertheless, Oracle, PeopleSoft, SAP and Siebel Systems continue to plow ahead in this direction.

Earnings Growth Rates
Vendor FY 2002 FY 2003 Next 5 Years
JD Edwards
43.2%
64.5%
21.0%
Epicor
n/a
n/a
20.0%
e.piphany
n/a
n/a
32.3%
Invensys
n/a
35.7%
1.5%
KANA
n/a
74.6%
50.0%
Oracle
-0.80%
14.1%
19.9%
PeopleSoft
23.9%
28.8%
27.7%
SAP
n/a
26.3%
26.1%
Siebel
15.0%
29.3%
26.1%
Not included: Baan is a business unit of Invensys plc's $2.5 billion turnover Invensys Software & Systems (ISS) Division, following the acquisition of the Baan business by Invensys in September 2000.

CRM II
While originally focused on providing sales, marketing, and customer service automation, CRM technology is rapidly expanding to encompass content management, personalization, channel management and order management functionality. Some analysts insist that these new, expanded systems are so different that they must be identified as "CRM II." The more likely scenario is that the CRM market as a whole will move in this expanded direction, obviating the need for a new designation.

Average Three-year Spending Per Firm: $75 Million

Source: Forrester Research, 2001

The Need to Integrate
The broadened scope of Enterprise Resource Planning (ERP) technology comes with new challenges. These different operational, analytic and collaborative CRM-related channels must be able to communicate with one another and share a single view of the customer, regardless of the touch point.

From this need was born customer data integration (CDI) technology. It provides cleansing, standardization, de-duplication and matching technology for building and maintaining a single, accurate customer record across multiple CRM systems.

CDI has enjoyed strong market acceptance since its introduction. IDC estimates that the worldwide market for CDI technology will grow at a 29 percent compound annual growth rate through 2004.

Estimated Market Growth in CRM Applications Software and Services:

2002: $68 Billion

2005: $162 Billion

Source: IDC

KANA and E-CRM
Some vendors are attempting to differentiate themselves in the CRM market by focusing more deeply on Web integration. One so-called e-CRM vendor is KANA, whose customer list includes the likes of E-Trade, United Airlines and Verizon. Meanwhile, e.piphany recently dropped the "e-CRM" designation in pursuit of a stronger foothold in the general CRM market.

Fundamental Financials: Last 12 Months
Vendor Symbol Sales Income

Net
Profit
Margin

Return on Equity
Debt/
Equity
Ratio
Rev
per
Share
Earngs
per
Share
JD Edwards
JDEC
$874
million
-$179.8
million
-20.6%
n/a
0.0
$7.34
-$1.61
Epicor
EDIC
$183.9
million
$31.4
million
-17.1%
n/a
0.17
$4.16
-$0.76
e.piphany
EPNY
$125.7
million
-$2.61
billion
n/a
n/a
0.0
$1.77
-$38.25
KANA
KANA
$106.1
million
-$3.35
billion
n/a
n/a
0.0
$5.82
-$415.02
Oracle
ORCL
$10.52
billion
$2.5
billion
23.7%
43.8%
0.05
$1.92
$0.44
PeopleSoft
PSFT
$2.07
billion
$191.6
million
9.2%
13.4%
0.0
$6.85
$0.59
SAP
SAP
$6.43
billion
$7.22
million
11.2%
32.1%
0.0
$5.10
$1.01
Siebel
SEBL
$2.05
billion
$254.6
million
12.4%
15.1%
0.18
$4.43
$0.49
Source: Zacks Investment Research