At first glance, ERP leader SAP appears to be handily beating competitors Siebel, Oracle and the newly merged PeopleSoft-J.D. Edwards in the CRM applications space. In fact, Forrester Research analyst Erin Kinikin told CRM Buyer that SAP earned more licensing revenue last year than those other three vendors combined. And as total earnings in the market have dropped 30 percent, SAP claims to have won 9 percentage points of total market share away from its rivals.
“What kind of horse race is that?” Kinikin said. “It’s like three of the horses are running backwards.”
However, determining the leader of the CRM pack is not simply a matter of measuring revenue. Kinikin noted that SAP has sold almost no CRM applications outside of its large ERP installed base.
“Is SAP number one in CRM just because customers are buying it [in addition to existing SAP ERP systems],” she said, “or do you have to attract new customers to really be number one?”
What’s in a Customer?
Denis Pombriant, vice president and research director of CRM at Aberdeen Group, told CRM Buyer that at the Sapphire ’03 conference in June, “SAP was saying they had about 2,000 CRM customers, but they were very cagey about not being able to tell us how many were actually installed, how many were being installed and how many were on the shelf. Part of SAP’s strategy is to provide a free copy of CRM to any SAP customer that’s converting from the older R3 product line to mySAP.”
Because of this strategy, Pombriant said, it is not clear how many of SAP’s applications actually are being implemented. The quality of the company’s stated market share therefore may be the most important question.
“This is where you get to the point where you start to say, ‘Market share ain’t what it used to be,'” he said.
In addition, although SAP might be able to claim that 2,000 copies of its software are deployed in the field, Siebel boasts that it has 3,500 customers using its product, according to Pombriant. Those customer companies’ revenue ranges from as little as $50 million to as much as $200 billion.
Therefore, he said, “Siebel is by far the market share leader where it counts, which is in actual implementations and in the great breadth and depth of its customer base.”
Still, defining what constitutes market share can be tricky because CRM vendors earn revenues through multiple channels, not just from software sales.
Especially now that prices for enterprise applications have plummeted, most enterprise software companies reap the bulk of their revenue from consulting and maintenance fees, not initial sales, according to Forrester’s Kinikin. She called that development a significant shift; however, she added that profitability does not necessarily equate to a strong position for the future.
“You can get to profitability by screwing your install base,” she said. “All you have to do is up maintenance prices by a percent a year, and you’ll be profitable in the medium term. It takes two or three years to get off a big enterprise application, so you still have that amount of time where people are stuck.”
Kinikin added that new license revenue, rather than profitability, is ultimately the best barometer of market share viability. After all, it indicates how many additional entities have inked deals to buy a vendor’s software, and it shows momentum.
“If you’re just buying razor replacement blades, you haven’t really made a new commitment. You’re just coasting along,” she said. “But if you buy a whole new razor, then forever after, the company has all your razor blades.”
In addition to new license revenue, referenceable customers — companies that have bought a vendor’s software and are willing to serve as positive references for it — also play a role in determining the winner of the market share race, according to Kinikin. She noted that many ERP vendors brag about their CRM sales yet have relatively few happy — and thus referenceable — customers.
“Hopefully, that catches up to a company,” she said. “You [have] to show that you can make companies successful, or it should be harder and harder to get new business.”
According to Kinikin, Siebel has the most referenceable customers in the CRM space. Still, she added, the company needs to be able to translate that advantage into increased sales.
Although end-user satisfaction plays an important role in gaining and maintaining market share, IT budget constraints are causing enterprises to factor in the total cost of ownership (TCO) when choosing among various CRM options. This trend especially benefits vendors like SAP, Oracle and PeopleSoft, all of which offer both front- and back-office suites.
Sheryl Kingstone, senior analyst of CRM strategies at the Yankee Group, told CRM Buyer that companies are consolidating their infrastructure and using fewer vendors in order to lower TCO. “It puts everything on one management cycle [and] one code base,” she said.
Stealing from Siebel
Kingstone noted that SAP has a lot of opportunity to steal potential customers from Siebel because, unlike SAP, Siebel does not sell back-office CRM software.
“A lot of times a company might have [had] an SAP back office and looked to Siebel for the front office because [Siebel was] the powerhouse there,” she said. “Now that SAP has built out its front-office capabilities, it is no longer necessary to go outside of [a company’s] own infrastructure.
“A lot of companies are saying, ‘Let me just see what SAP has [on the front-office end].’ Nine out of 10 times it meets their needs, especially on the sales and marketing side, less if they have huge call centers.”
However, Kingstone said Siebel’s products are still strong in functionality and are hands-down the CRM leader. To capitalize on this advantage, Siebel needs to redesign its offering as more of a composite-based model. For example, she noted, by making its architecture more compliant with Java 2 Enterprise Edition (J2EE), Siebel’s can ensure its applications can be more easily integrated into a best-of-breed environment.
Go on to Part 2.
Clearly, SAP is fighting like a bengal tiger here. But how long will SAP be able to maintain the licensing lead?