The True Leader of the CRM Pack – Part 2

Staying ahead of the CRM pack requires good strategy, good timing — and usually good luck. As discussed in Part 1 of this article, one way to identify the sector leader is to compare different vendors’ market share (though that concept can be defined in various ways). The outcome of such a comparison can significantly affect a company in potential customers’ eyes.

“Buying from a leader helps to ensure that you’re making a safe choice,” Aberdeen Group analyst Denis Pombriant told CRM Buyer. “You’re buying from somebody who has got good revenues and who is going to be in business tomorrow.”

In part 2 of this piece, CRM Buyer explores how recent industry upheaval has affected the race for the top spot, shifting the balance of power among heavyweights SAP, Siebel, Oracle and PeopleSoft, as well as relative newcomer Microsoft. For example, desire to be a more prominent player in the sector seems to have prompted PeopleSoft’s recent acquisition of J.D. Edwards, and it also likely is a motivating factor behind Oracle’s attempts to buy PeopleSoft.

Will these maneuvers benefit the industry as a whole, or will the companies involved hurt both end users and themselves in their struggle to be king?

Is Bigger Better?

In terms of PeopleSoft and J.D. Edwards, Forrester analyst Erin Kinikin told CRM Buyer that it may be difficult to achieve synergy between a mid-market manufacturing company and an enterprise service industry company.

“The good news with PeopleSoft and J.D. Edwards is there’s very little overlap, and the bad news is, there’s very little overlap,” she said. “How do you save all that money they’re promising to save if there’s no overlap in the customers they sell to or the products that they make?”

Kinikin took an even more negative view of a possible Oracle-PeopleSoft deal, saying “the point of ensuring a competitive market is ensuring that the majority of customers in a given market have multiple valid choices for their businesses.” She noted that an Oracle takeover of PeopleSoft could diminish the number of available options.

However, Yankee Group analyst Sheryl Kingstone told CRM Buyer that a combined Oracle-PeopleSoft would make a lot of sense.

“[Oracle] can take pieces of PeopleSoft that are better than [its own]. Oracle would have PeopleSoft sales reps who actually know how to sell applications, and together they’re a stronger company.”

Market Share Fallacy

For his part, Pombriant said that merging two companies’ customer bases does not necessarily, as a practical matter, translate into greater market share.

“Growth by acquisition can be counterproductive if it is not done right,” he explained. “And by not being done right I mean that if vendor A buys vendor B with the intention of in [the] short term converting vendor B’s customers to vendor A’s applications, vendor A is going to have a distraction from the real work of doing R&D and pushing the envelope to make better CRM applications.”

By reducing the number of competing vendors, he said, the industry risks reducing the amount of innovation taking place — and customers must bear that cost.

Stronger Companies, Weaker Industry?

“With fewer vendors, there is going to be less innovation and more of an attitude that, ‘Well, if we don’t get to it this year, we’ll get to it next year, because the other two or three vendors in the market aren’t paying attention to it either,'” Pombriant noted.

“If there is reduced innovation, and everybody kind of gets caught up with each other, then you’ve got a commodity situation,” he said, though he added, “I don’t think CRM is anywhere close to getting into a commodity situation.”

Instead of stagnation and commoditization, he said, end users want more innovation that incorporates new technologies, such as wireless, and does a better job of facilitating business processes. In a nutshell, customers want software that can help them gain a competitive advantage.

A Whole Different Race

The Big Four vendors — SAP, Siebel, Oracle and PeopleSoft — are not the only contenders in the CRM space. Microsoft also is making significant inroads into the industry by offering a cheaper alternative for companies running a Windows shop.

“Microsoft is a horse in a whole different race. They want to commoditize enterprise applications because Microsoft sells best in an undifferentiated commodity business,” Kinikin noted. “So, at the same time that Oracle, SAP and PeopleSoft are fighting each other, they have to constantly be on the lookout for Microsoft, which is going to come in and say, ‘Why spend all that money in the first place? How much of that complex functionality do you really need?'”

Studies have shown that only about 10 percent of SAP’s functionality ever is used in a given implementation, she said. The trick for Microsoft lies in correctly identifying that 10 percent, then capitalizing on that knowledge by creating a product with only the needed functionality.

“Companies have different requirements,” Kinikin noted. “Payroll is different in The Netherlands than in the Bahamas.”

Microsoft’s Place

However, the Yankee Group’s Kingstone said that over the course of the next few years, most of Microsoft’s customers will be divisions within large corporations. The software giant might win a few large-scale deployment contracts with businesses that run exclusively on its software, she said, but those deals will involve customer companies in the upper mid-market rather than Global 2000 enterprises.

“Most of the larger divisions — companies that would be comparing a Siebel or an Oracle or an SAP — are going to be J2EE Unix shops, with which Microsoft does not play well,” Kingstone noted.

Nevertheless, Kinikin said that because it owns the Windows platform, Microsoft has the ability to leverage that reach to land CRM deals.

“I think, long-term, Microsoft is going to be one of the big three,” she said. “How can they not be? That would be a huge shift in the market.”

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