The high level of mergers and acquisitions in the CRM market will continue through 2008, research firm Gartner (NYSE: IT) 
predicts, with one in three CRM software vendors involved in such a transaction each year.
There has already been a series of very high profile M&As in the space, of course, including Oracle's (Nasdaq: ORCL) acquisitions of PeopleSoft and Siebel. These transactions led to significant price reductions in software license fees over the last few years, as well as much competitive maneuvering on the part of competing vendors, to buyers' delight.
"Acquisitions of major players such as Peoplesoft early in 2005 and Siebel this year by Oracle have played a key role in pushing prices down," said Chris Pang, senior research analyst for Gartner. "This encouraged more buyer activity with users 'stocking up' on CRM software."
More Realistic Market Activity
Now, though, the industry is entering into a more realistic phase of buying and industry positioning, Gartner says. The next wave of M&A activity, Pang predicts, "will spark a burst of innovation in CRM application research and development from 2006 to 2010."There is room for innovation-driven M&As in the CRM industry, agrees Martin Schneider, an enterprise software analyst at The 451 Group. "I can see companies like Avaya (NYSE: AV) for instance, picking up a hosted vendor like Five9 to build out their contact center functionality," he told CRM Buyer.
Other transactions are likely to be driven by more prosaic reasons, such as a vendor's need to build out market share or a customer base, or to acquire functionality that it doesn't have the time or resources to build, he continued.
"We are seeing older companies that don't have the resources to build a hosted application in house determine that it is easier to acquire the functionality," Schneider said. "That way they get the technology as well as the sales and marketing 
expertise, which can be different than in a legacy environment."
Also, vendors outside of the main revenue earners in the industry -- that is, everyone who is not SAP (NYSE: SAP) , Oracle and Salesforce.com (NYSE: CRM) -- are exploring ways to tap into the SMB space, he noted. For many firms, the best way to acquire the needed functionality and other skill sets is through acquisition.
Suite Building
The lead driver behind many of the M&As, though, is a determination to build out functionality into a suite offering. Even the major suite providers will continue to add onto their capabilities, Schneider predicted.
"We will see everyone from SAP and Oracle on down either making vertical plays or making one-off acquisitions to improve a certain feature like marketing or e-mail management. Everyone wants to make the suites more inclusive. Meanwhile, best-of-breed vendors that are coming up the ranks, like analytics providers, are looking to create suites in their own right," he concluded.
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