Who’s Number One? Who Cares?

I got an interesting press release the other day. Headlined “SalesForce Loses CRM Lead,” the release said that a new hosted CRM company, FreeCRM.com, claims 13,500 customers to Salesforce.com’s 12,500. Hence the leadership change. As you might expect from the name, this company has amassed its considerable hosted CRM community by giving away its product.

Where do I start with this? As Austin Powers might say, “Oh, please!”

The Giveaway Game

I seem to remember the same approach — companies giving away product hoping to make money on the upgrade — in the early days of PC software, and also in the bubble days. Watching companies dive into the CRM market as low-cost providers tells us how late in the trend we are. And even if it weren’t rather late to be jumping in, most customers want to know what you can do for them, not how great you are.

Nobody makes money by giving away product like this, and if you don’t make money, you don’t stick around. I think that’s the third law of thermodynamics, right behind entropy — or maybe it’s just economic gravity. So far only Microsoft has managed this levitation act, giving away operating system components such as its browser and media player, but even Microsoft remains tethered to earth by a string of lawsuits. Last month the EU told Microsoft to partially unbundle its operating system.

More to the point, I would like to be perhaps the first to point out that CRM market share doesn’t amount to a proverbial hill of beans any more. It stopped mattering much when SAP started counting shelfware as “market share,” and it has mattered even less since Salesforce.com started reporting its growth that way on a monthly basis. For a newcomer to the CRM market to announce it has beaten Salesforce.com at its own game is like an upstart burger chain claiming it has served billions more burgers than McDonald’s — you can have all the billions you want, but the path to McDonald’s is already well worn, and people are past caring.

A Case in Point

About fifteen years ago, you might recall, there was a boomlet in craft-brewed beer, led by Samuel Adams. Overnight hundreds of craft brews materialized, and all of them borrowed messaging from Sam Adams: two-row barley, gourmet hops, pure water and freshness. Today only a small handful of craft brewers is left and the majors have co-opted the messaging: Some focus on freshness, others on pure water — and nobody cares. That’s because as soon as two or several vendors have the same capability, the capability becomes a commodity and the competition moves on to other issues.

So what do we make of CRM market share today? Based on my observations, I would have to say that big market share no longer matters. It might matter again at some point, but right now it’s a non-issue. In the case of hosted CRM, the market is proven. Salesforce and RightNow each had successful IPOs last year, and the marketplace accepts the utility model as a legitimate mode of delivery.

Next Stop

Where do we go from here? Well, it probably won’t be a price war: All of these solutions are already too cheap. Before a business starts calculating what it would save if it knocked two dollars per seat per month off its current bill, it will look to invest in better functionality. At the moment, improved functionality seems to be what many of the leaders in the space are working to deliver. Salesforce.com is promoting new customization and development features, Salesnet is building a reseller channel and encouraging its partners to build custom versions of its product, and Siebel is offering pre-built vertical market solutions.

Many vendors are also extending their reach into other sectors within CRM. For example, RightNow is filling out its service and support suite with sales and marketing solutions, while Siebel and Salesforce.com are offering on-demand call center packages.

Does it matter who has what market share? In the long run it might, but the long run has a lot of challenges lurking, and market share is more a symptom than a cause. As long as we inhabit an expanding market, there will always be more customers and more products to sell. The market isn’t limitless, but it is big. At this point in hosted applications, it is important to establish credibility, secure a niche and treat your customers well.

Market share? That is so last year.

Denis Pombriant is founder and managing principal of Beagle Research Group. An influential thought leader in the CRM industry for more than five years, Pombriant researches emerging trends in CRM and publishes research reports that can be found on the company’s Web site and on other influential Web sites in the CRM market. In 2003 CRM Magazine named Pombriant one of the most influential executives in the CRM industry. He is also quoted extensively in Paul Greenberg’s CRM at the Speed of Light, third edition. His latest report is titled “KeyFindings: CRM Market Events, Observations, and Analysis 2004.”

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