Consolidation gathers pace

After a lean few years, new research shows, the customer relationship management market is finally on the mend. But the frenetic pace of consolidation in the sector recently has done little to relieve the turmoil facing CRM buyers.

Oracle’s $5.8bn acquisition of Siebel last week confirmed a trend in the market: that traditional standalone CRM vendors are struggling.

The CRM market has recovered from the dotcom hangover with sales of CRM software growing 8 per cent to $8.8bn in 2004, according to IDC. The growth is coming not from established vendors but upstart hosted providers such as salesforce.com and RightNow Technologies, which offer CRM over the internet.

Using hosted CRM is not necessarily cheaper than traditional CRM software, analysts warn, but it can reduce the headaches associated with installing software on site.

“The hosted category has changed the whole perception of customer management with faster implementations, quicker time to value, and easy customisation,” says Rob Bois, senior research analyst at AMR Research. Nor is it necessarily a technological panacea. Stories of companies struggling to integrate a hosted solution with existing technology are plentiful.

“Hosted CRM has yet to prove that it can be part of an integrated environment,” says Nick Hewson, managing director of Hewson Group, a UK-based CRM analyst company.

But he says that hosted CRM makes sense for smaller enterprises or those new to CRM, but less so for many big businesses.

“If you have a lot of infrastructure and are already running Siebel, you aren’t going to rip it out,” says Mr Hewson.

Siebel, once the undisputed industry leader, had been going through a decidedly rough patch before Oracle – which has been consolidating across the software sector with great energy – emerged as a predictable white knight.

Siebel had been slow to launch its own hosted CRM offering and “the rest of Siebel’s business is in the doldrums,” says Mr Hewson.

The problem facing Siebel and others in this fragmented industry is that the market has changed since its 1990s heyday. “People are looking for a more pragmatic approach,” says Mr Hewson.

As well as hosted CRM, businesses are now taking a close interest in the CRM offerings of mainstream software vendors such as SAP, which have improved markedly.

These companies bundle CRM in a suite of other software – often at negligible extra cost. This suite-based approach promises to ease the integration headaches associated with standalone CRM products from “best-of-breed” vendors such as Siebel.

SAP increased its CRM revenues 30 per cent in 2004, forcing Siebel into number two spot, according to AMR’s figures.

PeopleSoft’s CRM offering is also well respected, although Oracle’s hostile takeover of PeopleSoft has put a question mark over the PeopleSoft product line. Microsoft also has a fledgling CRM software product aimed at SMEs.

SSA Global, a fast-growing challenger to SAP and Oracle, is the latest mainstream vendor to jump on the CRM bandwagon. Last month, it acquired Epiphany, a fallen star of the CRM industry.