MarketScope: CRM Software for Midsize Enterprises, 1H04

Transcription

1 Markets, W. Close Research Note 19 December 2003 MarketScope: CRM Software for Midsize Enterprises, 1H04 MSEs needing customer relationship management software but with less than $3,500 per user to deploy a solution have several options. A Gartner survey shows the benefits to MSEs of deploying lower-cost CRM alternatives. Core Topics Customer Relationship Management: Creating Business Value for CRM Small and Midsize Business: SMB IT Project Manager Key Issue Which vendors, products and services will be best-suited for small and midsize business IT requirements? Strategic Planning Assumptions Salesforce.com's "bubble" will burst in 2005 because of increased competition and its inability to deploy traditional software inhouse as well as provide an ASP model (0.6 probability). Because of the competitive nature of the MSE CRM market, by 2005, Onyx will remain independent but constrained by viability issues (0.8 probability). In 2004, Best will feel the impact of Microsoft CRM slowing its revenue growth (0.9 probability). By 2006, Microsoft will be appealing to large enterprises with 250 to 500 CRM users, rather than the present target of 15 to 150 seats (0.8 probability). By year-end 2005, Microsoft will be the fifthlargest CRM application vendor worldwide (0.7 probability). Because of an upturn in revenue from Siebel CRM OnDemand sales, through 2004, Siebel will remain the largest market share holder in CRM software for MSEs (0.8 probability). The CDC acquisition will not relieve Pivotal from the increasing long-term competitive pressure it will receive beyond 2005 (0.9 probability). Gartner produces customer relationship management (CRM) suite Magic Quadrants for the business-to-business and business-to-consumer markets in which we focus on, for the most part, the needs of our large-enterprise clients. This MarketScope examines CRM solutions with a focus on criteria most important to North American midsize enterprises (MSEs; defined as 100 to 1,000 employees) or midsize divisions of large enterprises. The criteria include features, ease of implementation, total cost of ownership (TCO), price (less than $3,500 per user to deploy) and ease of use (source: a Gartner survey conducted from June to October 2003 of 142 MSEs and smaller enterprises). Because the CRM midmarket is a focused market segment, we have decided to retire the use of a Gartner Magic Quadrant to analyze this CRM market sector in favor of Gartner's new MarketScope. With our new rating advice (see the MarketScope Rating Framework below), this MarketScope provides specific guidance for MSEs that are deploying, or that have deployed, CRM software and for potential new MSEs seeking to purchase CRM software. Market Description: CRM software suites for MSEs are defined as an integrated set of sales, customer service and support, and marketing applications that employ a common architecture, referencing a common logical database with a single schema. Some CRM suites are more of an interfaced application bundle that is, a set of interfaced applications from a single vendor that contains more than one technical architecture or more than one logical database, frequently assembled by the vendor through acquisition or partnership. Common features of a CRM software suite for MSEs include opportunity (that is, leads or objectives) management for sales, including accounts, contacts, forecasts, quotes and activity management; customer service Gartner Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 incident tracking and resolution capabilities; product support management; marketing; campaign management; and reporting and analysis. Rating for Overall Market: Our outlook for MSEs investing in CRM software is "positive" because we have found overwhelming proof of the benefits of CRM initiatives among MSEs (see "SMBs Report High User Satisfaction With CRM Software"). However, CRM vendor viability will remain a critical consideration, because it is likely that more than 50 percent of the vendors in this market will be acquired, merge or go out of business by Key to this is the entrance of Microsoft at the low end of the market and movement downstream from the large enterprise vendors (such as Siebel Systems, SAP, Oracle and PeopleSoft). Expect more compelling options by 2006 as the offerings mature. Market Rating: "Positive" Evaluation Criteria Product features, quality, usability, customization, integration and innovation delivery of new and innovative functionality that resonates with MSEs Total cost of ownership, price, time to deploy, ease of implementation, quality of services and support, and potential return on investment and benefits in alignment with MSEs' resources and goals Financial viability and market commitment to the CRM needs of MSEs ability of the vendor to generate sustainable revenue and profit and to show a commitment and investment (R&D, marketing, sales) to be successful with MSEs (to be rated higher than "caution," based on Gartner estimates, a vendor must be projected to produce more than $25 million in CRM revenue in 2003) References the number of high-quality MSE references with which we speak to substantiate the technical, support, implementation, pricing, TCO and marketing claims of the vendor for its CRM product (to be rated higher than "caution," a vendor had to be able to provide Gartner with 15 to 30 MSE CRM references from June to October 2003) Marketing momentum in CRM solutions for MSEs such as partnerships, distribution channels, new license revenue, installed base and sales effectiveness Figure 1 shows our MSE CRM software MarketScope. 19 December

3 Figure 1 North American MSE CRM Software MarketScope Strong Negative Caution Promising Positive Strong Positive ACCPAC International Best Software (SalesLogix) Epicor Software (Clientele) Firstwave FrontRange Solutions Interface Software Microsoft (Microsoft CRM) NetSuite Oncontact Software Onyx Software PeopleSoft Pivotal Salesforce.com SAP Saratoga Systems Siebel Systems Soffront Software Note: Some companies, while compelling enough to be included, are rated "caution" because we estimate that they will produce less than $25 million in CRM revenue in 2003 or they could not provide Gartner with 15 to 30 customer relationship management midsize enterprise references from June to October Source: Gartner Research (December 2003) MarketScope Rating Framework A Gartner MarketScope rating does not imply that the vendor meets all, few or none of the evaluation criteria. The Gartner MarketScope evaluation is based on a weighted evaluation of each of the vendor's products in comparison with the evaluation criteria. Enterprises should consider Gartner's criteria as they apply to the enterprises' specific application requirements. Clients should contact Gartner to discuss how this evaluation may affect their specific needs. In Table 1, the various ratings are defined. 19 December

4 Strong Positive Positive Promising Caution Strong Negative Table 1 MarketScope Rating Framework Solid provider of strategic products, services or solutions. Customers: Continue investments. Potential customers: Consider this vendor a strong strategic choice. Demonstrates strength in specific areas, but is largely opportunistic. Customers: Continue incremental investments. Potential customers: Put this vendor on a shortlist of tactical alternatives. Shows potential in specific areas; however, initiative or vendor has not fully evolved or matured. Customers: Watch for a change in status and consider scenarios for short- and long-term impact. Potential customers: Plan for and be aware of issues and opportunities related to the evolution and maturity of this initiative or vendor. Faces challenges in one or more areas. Customers: Understand challenges in relevant areas; assess short- and long-term benefit/risk to determine if contingency plans are needed. Potential customers: Note the vendor's challenges as part of due diligence. Difficulty responding to problems in multiple areas. Customers: Exit immediately. Potential customers: Consider this vendor only if there are no alternatives. Source: Gartner Research (June 2002) Vendor Analysis We don't rate any supplier "strong positive" because they all pose one or more challenges that must be overcome for such a rating. Salesforce.com, an application service provider (ASP), with its sforce v.2.0, has been setting higher standards for ease of use, ease of deployment, manageability and economy for CRM offerings targeted at the midmarket. It has 8,400 customers, has 120,000 subscribers and is a top-six market share holder in CRM software for MSEs. MSEs looking to consolidate sales activities in a single system to improve sales visibility, corporate memory and collaboration are finding Salesforce.com appealing. The greatest challenge for Salesforce.com is to deliver enough value at a low enough price to keep users from canceling the service after one or two years, once they become more mature in CRM, are ready to deploy an in-house system or want more end-to-end process integration, such as managing sales quotes to collecting the cash for the order. Gartner believes Salesforce.com's customer turnover rate will rise sharply during the next three years. Based on a Gartner-developed scenario, the three-year TCO (does not include laptops, desktops, telecom or help desk; does include software, services, support and maintenance) for Salesforce.com's Professional Edition, for a midsize company with 171 CRM users (assumes 100 salespeople of which 75 need mobile offline capabilities, five marketing users, December

5 customer service and support users, 10 managers, five executives and one system administrator, basic CRM features, minor customization, data conversion and one connector to a legacy system), will be more expensive than Microsoft CRM ($3,156) and SalesLogix ($2,275), but less than Siebel MidMarket Edition ($4,264), Pivotal ($4,586) or Onyx ($5,767) server hardware required for these in-house options is included. Salesforce.com is appealing as a short-term solution to many. As a long-term solution for an MSE, it can be costly an estimated $3,320-per-user three-year TCO for Professional Edition or $5,436 for Enterprise Edition. Rating: "Positive" Salesforce.com's "bubble" will burst in 2005 because of increased competition and its inability to deploy traditional software in-house as well as provide an ASP model (0.6 probability). Onyx Software has 997 customers, 221,000 seats sold and less than 3 percent market share in CRM software for MSEs. Its Onyx Employee Portal product offers an integrated CRM application across marketing, sales, and service and support, for a fair price users report spending about $3,500 on average per user to deploy the solution. Its mobile sales capabilities are the least mature component of its offering (it's just starting to get customers live on its new mobile Web client). The key challenge for Onyx is to deliver consistent revenue growth and regain profitability (Onyx has not made a profit since the fourth quarter of 1999), which it expects to do by the second quarter of 2004 when it finishes paying off debt for excessive facilities. Its clients rated themselves more mature in CRM than competitors, including Siebel and Pivotal users, and users rated it high in customer satisfaction, second only to Salesforce.com users. MSEs looking to implement a tool to provide better customer support to retain customers and improve customer relationships, or to provide a closed-loop system to manage from prospect to sale to engagement to support, will find Onyx appealing. Although we remain cautious about Onyx's financial position, our rating for Onyx is "positive." Because of the competitive nature of the MSE CRM market, by 2005, Onyx will remain independent but constrained by viability issues (0.8 probability). Best Software is the No. 2 market share holder in CRM software for MSEs, tied with SAP and second only to Siebel, with 5,400 SalesLogix customers and 230,000 users. Best has a large reseller base that it has not leveraged well yet, and it is financially strong as the fourth-largest enterprise resource planning software market share holder. A key challenge for Best is that most SalesLogix users will cite the product as their sales 19 December

6 force support tool, including linking to their back office for transaction history and analysis not as a full CRM solution. Users report spending about $2,100 on average per user to deploy the solution. Best offers good options for mobile sales users, has a product called DynaLink for simple and inexpensive (less than $2,000) integration to popular MSE back-office systems, and plans to offer a customer service module for handling customer inquiries with v.6.2 due in the second half of 2004 it has SalesLogix Support today for handling product support. The SalesLogix product is.net-compliant but needs further technical enhancements to better support Web services. Users would like less reliance on third-party applications to fill out the product's missing CRM features, such as campaigns. Users would like Best to be more responsive to their needs rather than having to rely on SalesLogix's value-added resellers that sell to and service its users, because the quality varies among partners. The product is good for sales, but light for customer service and support and marketing. Rating: "Positive" In 2004, Best will feel the impact of Microsoft CRM slowing its revenue growth (0.9 probability). Microsoft CRM is gaining momentum among Microsoft-centric MSEs that have never deployed CRM or sales automation software. Shipping since January 2003, it now has about 1,000 customers averaging 18 or 19 users each, and about three dozen clients with more than 200 users (20 to 75 CRM users is a good fit). Enterprises report spending about $2,400 on average per user to deploy the solution. Microsoft shipped v.1.2 in December 2003, making it available in 47 countries and eight languages, but most of the needed enhancements, like the ability to add a table to the database, won't come until v.2.0, expected at year-end For MSEs that need to improve forecast accuracy, pipeline visibility and opportunity management, to track customer accounts and contacts, and to improve simple sales and service processes, Microsoft CRM is meeting their basic needs. The product needs many feature improvements, such as better marketing campaign management or support for PDAs, to appeal to MSEs with more-complex, broader CRM needs. Rating: "Promising" By 2006, Microsoft will be appealing to large enterprises with 250 to 500 CRM users, rather than the present target of 15 to 150 seats (0.8 probability). By year-end 2005, Microsoft will be the fifth-largest CRM application vendor worldwide (0.7 probability). Siebel Systems is the largest market share holder in CRM software for MSEs, with 1,800 MSEs and smaller enterprises as customers. It has two ASP solutions: Siebel CRM OnDemand: UpShot Edition (1,000 customers) and its new Siebel CRM 19 December

7 OnDemand, and many options for on-premise software, including its MidMarket Edition (800 customers), its Enterprise Edition and 23 industry-specific offerings, including several for MSEs. For Siebel, 2004 will be a critical year as the company merges its two OnDemand alternatives into a single merged solution, seeks to attract MSEs with Siebel CRM OnDemand, and considers possible changes to Siebel MidMarket Edition. Siebel is the most frequently evaluated CRM vendor by MSEs and smaller enterprises because of its leadership position in CRM software. However, many have eliminated it from consideration based on the relatively high cost and complexity of its on-premise solutions relative to their requirements. Gartner surveyed nine clients that reported spending $12,000 on average per user, depending on requirements (includes software, hardware, services, and firstyear support and maintenance), to deploy Siebel MidMarket Edition. With Siebel CRM OnDemand, Siebel has the potential to sell a lower-tco solution (list price of $70 per user per month) or an integrated hybrid solution of hosted and on-premise software. Siebel continues to offer the most-feature-rich options for MSEs. Rating: "Promising" Because of an upturn in revenue from Siebel CRM OnDemand sales, through 2004, Siebel will remain the largest market share holder in CRM software for MSEs (0.8 probability). Pivotal, with its Pivotal v.5, offers robust sales features, including mobile sales, good marketing campaign management and improved call center features. It has about 1,600 customers, 167,000 seats sold and less than 3 percent market share in CRM software for MSEs. Users report spending about $3,500 per user to deploy the solution. Although it has reported losses for several quarters (Pivotal has not realized a profit since the third quarter of 2000), it is getting closer to breaking even. On 8 December 2003, Pivotal announced it will be acquired by Chinadotcom (CDC) if shareholders approve. Pivotal expects the deal to close in February CDC will provide the financial backing Pivotal needs to become viable, improve its operations and expand its market presence. However, Pivotal has a number of issues to address, such as its level and quality of support (Pivotal has announced a 40 percent increase in technical-support head count to address this issue) and helping its clients to migrate to its current release. Clients would like the Pivotal MarketFirst product for developing marketing campaigns to become more integrated throughout the core Pivotal system. Pivotal will improve its business with the infusion of capital from the planned CDC acquisition, making the combined entity a more formidable competitor in the CRM midmarket by the first half of 2005 (0.6 probability). Rating: "Promising" 19 December

8 The CDC acquisition will not relieve Pivotal from the increasing long-term competitive pressure it will receive beyond 2005 (0.9 probability). Other Players Although we rate ACCPAC International, NetSuite and FrontRange Solutions with its GoldMine product as "positive" in CRM software suites for the small enterprise (fewer than 100 employees), we rate them as "caution" for MSEs. Other players, while compelling enough to be included, are rated "caution" because we estimate that they will produce less than $25 million in CRM revenue in ACCPAC and NetSuite are included as well as Saratoga Systems with its iavenue product, Epicor Software with its Clientele product, Interface Software with its InterAction 5.1 product (for professional service firms and similar relationship-based organizations), Oncontact Software, Soffront Software and Firstwave (Firstwave and Connect-Care products). We also include SAP and PeopleSoft for their visions for CRM solutions for MSEs and the merits of their products, but rate them both "caution" because neither can produce enough MSE references to validate its vision, and high costs have been a concern with MSEs. However, due to the benefits of front-office to back-office process integration, for MSEs that currently use PeopleSoft or SAP back-office accounting and enterprise resource planning applications, their CRM solutions belong on your shortlist. Recommendations MSEs that have yet to invest in CRM software should evaluate the offerings mentioned in this research, because these solutions can help enterprises to improve organizational collaboration, provide a more consistent customer experience, and improve the quality of information available on customers all key building blocks to CRM maturity. To remain competitive and achieve these benefits, expect to pay between $2,300 and $5,800 per key customer-facing employee over three years. Implementation times range from 36 days for an ASP solution to 120 days on average. Acronym Key ASP application service provider CDC Chinadotcom CRM customer relationship management MSE midsize enterprise TCO total cost of ownership Bottom Line: Best Software, Salesforce.com, Siebel Systems, Microsoft, Onyx Software and Pivotal are in the best position to meet midsize enterprise customer relationship management software suite requirements in However, any of the options noted in this research may be a viable choice for any particular enterprise's unique business needs. Ultimately, the decision is based on the enterprise's unique requirements and business goals. 19 December