There are two questions that emerging companies in the CRM space field when they face the analysts — when are you going public and why don’t you build out a full CRM capability?
The first question is easily and deftly handled by most executives and it must be. An IPO has its own cadence and the Securities and Exchange Commission is very keen to protect its turf even in an age when congress keeps tight control on regulators’ budgets. It takes almost no effort to fine an over exuberant executive for making statements about things that are not in the official filing or during the quiet period. So, smart executives stay very far away from those questions.
The second question is, or at least can be, a quagmire. There are many marketing software vendors who have necessarily built functionality that spills out of the pure marketing definition and that’s enough to keep some people wondering. A customer database is a good starting point. The argument goes like this: you already have a customer DB so how hard can it be to blow out another wall and add sales functionality and then, Voila! CRM.
That logic misses the point by a country mile and a decent customer service function, yet it doesn’t go away. But there’s more to it than even raw functionality. Why would any sane CEO of a fast growing marketing automation company decide to blow the budget and slow growth to build out sales and service in a market where the CRM niche is rather full?
My advice goes like this. Don’t do it. Don’t build CRM, there is absolutely no reason for anybody to build another CRM system. The niche is covered so move on. Take as an example the last decade-full of successful software vendors. Siebel didn’t build ERP and the reasons are the same. ERP was full, it was better for Siebel to focus on building out its CRM functionality and that’s what it did. Late in the game, before the acquisition, the company was working on master data management and making its client server solutions at home on the web. Siebel didn’t build ERP though many people asked why not, because the company was looking for the next big thing not the last.
Siebel got acquired and its independent plans were sidelined. But look at Salesforce and you see a similar pattern. Financial Force, Intacct, Zuora and many other companies sprung up to provide financial functionality to the fast selling CRM but Salesforce CEO, Marc Benioff, has been adamant about not pursuing ERP. He’s focused on building out a new interpretation of the front office that’s social, mobile, and customer experience focused. That’s called a Blue Ocean Strategy and I have written about it before.
The rest of the big players — SAP, Oracle, Microsoft — all have pretty good CRM and they all trail Salesforce according to Gartner’s recent rankings. Generally, while their products are good, they trail Salesforce by about a generation when it comes to leading edge front office ideas like collaboration, customer journey, and the like. They aren’t innovating so much as trying to be fast followers.
I think any marketing automation company that tries to build out CRM functionality would also be a fast follower. They’d trade in what they’re very good at to regress to the mean, the middle of the pack. Instead, here’s a question that they could profitably answer. How are economic and demographic changes affecting how people and companies buy and how does marketing fit into that changed environment?
People and companies have become comfortable and adept at shopping online and making decisions without the assistance of traditional sales people. At a minimum this suggests a winnowing role for traditional SFA. But it also suggests a rising opportunity for marketing automation defined as nurturing customers on their buying journeys.
It also suggests an expanding role for the call center, which might get smaller in the next decade while changing at least part of its mission. I don’t think today’s marketing automation has yet tapped all the possibilities inherent in that one observation, nor do I think that the incumbent CRM vendors have embraced the idea.
So, when I hear talk about new companies entering the CRM market, I cringe. CRM is robust and thriving but it is also consolidating. There won’t be five major CRM vendors ten years form now. The availability of good, fast, standards-based integration is high and products are getting better all the time. The next move in the front office is best of breed, not tightly integrated solution sets. The front office platform might be stabilizing but the apps that play on it continues to expand and they work increasingly well together.
The move for fast growing companies in the front office is in furthering the embrace of the customer through advanced tools and techniques that include social media and inbound marketing. No traditional ERP for sure and no CRM either and that’s becoming increasingly obvious.
The CRM world has been atwitter, to borrow a phrase, ever since Gartner released its CRM market size report on April18. Since I am not rich, I do not own a copy of the document but the table of contents provides some very interesting fodder. The top five, in order, are Salesforce, SAP, Oracle, Microsoft and IBM.
My world is buzzing with reporters’ calls seeking comment and colleagues at the Enterprise Irregulars offering up opinions. Here are a few things to think about that I have ruminated on.
- For some companies figuring out CRM revenue is easy. Just ask Salesforce about their revenue or read their SEC documents and Voila! But it’s not so easy to tease apart CRM from other revenue if a multi-product vendor like SAP or Oracle decides that apples is apples and doesn’t split out the different revenue streams — effectively asking the analysts, “How do you like them apples?”
- I can understand a financial analyst firm doing this kind of work but less so a technology or industry analyst firm. Sure, these reports make for fun reading but they are backward looking. Financial guys look backward all the time. Heck, I know some that haven’t seen the recession yet. But my peers ought to be looking forward. Imagine if ten years ago we were all saying SaaS and Cloud are the future instead of: On-prem forever! But I digress.
- When you don’t have hard numbers to deal with, and I strongly suspect that some of these vendors undoubtedly did not give the analysts dollars and cents results, you start having to triangulate. The vendor might say that their revenues were in the x to y range and a competitor or two might say they’re in the low end of the range or whatever. The result is that the analysts have to read tealeaves and do some math that is based on assumptions. When that happens, all bets ought to be off. Averaging everyone’s estimates just gives an error prone result if you can call it that.
- Ditto for the size of the whole market. About ten years ago I saw some work that looked like it took a long time to compile that said the CRM market had an absolute size of about $46 billion. We left that number in the dust a while ago and we still forecast $20+ billion in products and services per year and growing. Go figure, if you can.
- Then there is the matter of how you measure. Fiscal years differ, measurements differ — Seats? Dollars? Currency Conversions? Canasta? — the analysts have to rationalize it all so that we’re all talking apples. That’s hard to do.
A few years ago SAP was battling Siebel for the #1 ranking and according to financial analyst reports at the time, they were booking any revenue that was not nailed down as CRM. I still have the reports. I think SAP won the derby that year but the next year the analysts started counting the shelfware in major IT departments and guess what they found? Only about half of SAP CRM had been installed or was likely to be while Siebel, Oracle and some others consistently had about 25% shelfware.
Market dominance became important when Geoffrey Moore published Crossing the Chasm because his data showed that most markets consolidate into a three horse race with numero uno taking most of the business, due hanging on to keep uno honest and tre looking for a buyer. But each of the CRM vendors in the top five is a complex, multi-product company. Each sells CRM for its own reasons and one of them is surely to offer a complete product line that keeps competitors at arms length. The number one spot is still coveted for bragging rights but trust me, if the ranking disappeared tomorrow, very few CIOs would have trouble rounding up the usual suspects for an RFP.
So to net it out, take this all with a pound of salt. It’s a beauty contest at best and in my humble opinion not a representation of the best work that analysts — either of financial or industry variety — can do.
When you get to a fork in the road, take it that’s what Yogi Berra once said and convoluted as it might seem, it’s wise advice. This wisdom encompassed Sage’s announcement today that it was selling off two of its front office CRM solutions, ACT! and SalesLogix to Swiftpage.
According to the press release announcing the sale, “Swiftpage provides digital marketing service solutions for micro and small businesses and, as an existing ACT! and SalesLogix partner providing integrated E-marketing services, is well positioned to advance these products. Sage remains committed to CRM via its global Sage CRM solution and will continue product investments to ensure it meets the needs of our SMB customers.” You can access the full press release here.
Good. I really mean that.
ACT! and SalesLogix have a big presence and loyal customers — more than 2.5 million for ACT! alone. But they’ve become non-core to the business. They’ll do well with a new sponsor as the press release intimated: “Swiftpage has partnered with Sage for years, and knows our products and customers well. With access to new technology and resources, it can deliver even more innovative, and integrated, products and services that help small and medium sized businesses convert prospects, retain customers and grow.”
Swiftpage is responsible for the Sage E-Marketing connected service, and Sage will maintain a 16.1% stake in the new ACT/SalesLogix operations, so the relationship will continue.
Mergers and acquisitions happen all the time in business. Sage knows this rather well as a company that has grown by acquisition. This move makes sense because it acknowledges that the market has changed since these acquisitions took place and because it enables the company to better focus on clear market realities in the CRM market.
Sage has had too many CRM solutions and the situation had become increasingly obvious over the last few years. Sage’s attempts to rationalize how the three solutions fitted into an overall market strategy, which included integration with its numerous accounting systems, was at times strained. Unlike its accounting packages, many of which address specialized markets like construction, manufacturing and real estate management, the CRM strategy was more based on company size and in the highly scalable SaaS age, that segmentation didn’t work so well. It also saddled Sage with three code sets that needed to be maintained and upgraded, an expensive proposition over time.
So with this divestiture the company gains simplicity in the form of one code set and market reach because the remaining product, Sage CRM is already SaaS based and capable of being installed in a variety of situations including cloud and on-premises, a tactic taken by all of the major software vendors except Salesforce.com.
Over the last few years, the CRM market has become inundated with new best of breed offerings that leverage social techniques like crowdsourcing and other social products like Twitter, LinkedIn and Facebook. Social techniques are proliferating in solution areas like marketing and service but also they have opened up many new niches where companies like GetSatisfaction, HubSpot and Awareness play.
But Sage had missed some of the social revolution focusing its attention instead on its Partners and SMB customer base and the front to back office business processes that they care most about. Nonetheless, as social has penetrated deeper into the front office, SMB’s have taken up the social challenge and Sage has needed an answer. With a single product and a robust API set the company will now accelerate in this critical area.
Sage’s response to market challenges in general have to go through its sales and implementation partners. It’s a diverse and competent group but each wants and needs different things and this reality drives multiple competing demands of its three CRM maintenance groups.
So, in one stroke, Sage realized some of the value in its ACT! and SalesLogix brands while enabling itself to better focus on core CRM in a way that I do not believe will be dilutive of its strengths. And as far as the partners are concerned, CRM was always a specialized offering for them; their primary focus has been ERP. While many carried a CRM product, more often when a partner found a CRM opportunity embedded in an ERP need, the partner had to bring in a CRM specialist partner. So the simplicity of one CRM product will be welcome.
So, I think this is all good for Sage. It must have been a tough decision especially because it will mean employees and likely some partners changing allegiances but that’s business. Moving forward with Sage CRM the company can unhesitatingly launch a multi-pronged on-premise, on-demand, cloud services campaign without worrying about which partners in the other product lines will be adversely affected. Let the innovation begin.