The last few months have seen a shift in how analysts are viewing the market for customer relationship marketing solutions. In the enterprise, analysts say business managers must act fast to regain the initiative to innovate customer relationship management (CRM) solutions. Lighthouse’s Duncan Chapple explains in this Research Round-up report that “Because the major drivers of change are technological, CRM managers lack the deeper analysis needed in order to understand how to regain the innovation initiative.”
- How software as a service (SaaS) is increasing the bargaining power of business
- How platforms like Google Apps and Force.com dramatically lower the barriers to entry
- Why customisation is the best defence strategy for traditional software vendors
- Why hybrid Clouds transform the supply side for apps
- Why salesforce and Google will win the competitive rivalries in the market.
Software as a service is increasing the bargaining power of business
It’s never been easier for IT managers to swap out one CRM system for another. SaaS means that new applications are easily available with much lower turnaround times: hence the growth rates which have been estimated around 24% by some (Louis Columbus, one of the best analysts of the market, has an excellent forecast here). And the wider availability of innovative ‘pro-sumer’ CRM means there’s never been more pressure on IT managers to develop better functionality – and above all more usable mobile and browser interfaces and what Forrester calls midsize organisations. Migration to the cloud is now the pivot in many managers’ minds, because the business model for licensed and on-premise software is clearly in a terminal decline. As Ovum has noted, that’s reflected in the opening guns of a bitter price war.
However, the main driver of these changes is technological. Innovation is crucial, but it’s hard for CRM managers to anticipate the innovations which technologies enable. For example, software as a service and Cloud architectures haven’t developed from more traditional CRM activities like sales configuration, guided selling, product configuration, distributor management and so on. That means managers are asking questions: “What truly is the effect of software as a service and those new economics, not only on re-invigorating parts of this market, but also creating entirely new ones that are viable and will continue on to deliver value.”
That produces a delicate balance: unless solution providers offer better support for users, then buyers’ stronger power will lead to much lower pricing.
Platforms like Google Apps and Force.com dramatically lower the barriers to entry
The rapid growth of salesforce, which we discuss later, conceals a Trojan Horse strategy around APIs: the force.com platform uses CRM to establish an initial revenue stream, both quickly and with the greatest agility possible. The same is true for Google Apps. Smart CRM professionals and CRM vendors realise that this momentum can build a full platform. Vendors can proliferate out and build a reoccurring revenue stream, which is more profitable then the licensed vendors and faster: Salesforce’s sale force automation options have already got 20 million users globally. As Ovum’s Carter Lusher recently noted, the decision of a heavyweight business applications vendor, Infor, to make its product available on the salesforce platform has the potential for high rewards.
Similarly, enterprises can more easily role out applications. Both can use specialist app writing companies like Blue Wolf to get new apps out in weeks rather than months or years. However, lower barriers can produce more problems: as ex-Redmonk analyst Michael Cote noted, discussing research from Altimeter, that can just mean better junk mail.
Customisation is the best defence strategy for traditional software vendors
Because of the powerful economics behind the growth of platform, barriers to entry are lower. That increases the challenges for traditional vendors.
There are substantial new entry opportunities for analytics, segementation, integration with social media and HRM applications. We are keeping our eyes out for potential new suppliers, like Hoovers and Dun and Bradstreet, who have existing assets. In the long-term, even traditional license based vendors need to migrate onto SaaS.
Traditional vendors like SAP and Oracle are incredibly frustrated right now. They need defensive strategies, like Oracle’s ‘Red Stack’. As Butler Group has noted, customisation is the key advantage for vendors like Amdocs, and their partners, have in the medium term. Many of them face contradictory pressure: how far to reduce (or release and free up) engineering resources for SaaS platforms but on the other hand how far to increase clients’ switching costs. Vertical market strategies are key to increasing switching costs.
Hybrid Clouds and Social CRM transform the supply side for apps
SAAS based ERP is an interesting comparator to watch in terms of percentage of market right now. It’s hovering around 12% in all ERP shipments, and Gartner says events like salesforce.com’s purchase of Heroku aim to speed “the enterprise adoption of cloud computing”. SAAS based ERP, or core go to market and essential value chain based technologies like that, have got to be hybrid cloud based to deal with data management integration. The labyrinth of system integration points to why these companies must be able to fulfill customer requirements and customer orders. Hybrid is clearly going to be the direction.
And what aspect of the cloud could be more compelling for analysts than Social CRM? Forrester was perhaps the first firm to see Social CRM mainstreaming. Gartner now sees Social CRM exceeding $1bn and 30% of firms bringing communities into the design of solutions.
Salesforce and Google will win the competitive rivalries in the market
It’s a land grab for developer right now at Salesforce, both in terms of staffing up teams and M&A activity (as Gartner discussed with regard to Radian6). The firm’s growth rates are impressive, and the firm’s CRM revenues may overtake those of Oracle by 2015 if we use a conservative 15% growth rate. By building up its force.com platform, both technically and through supporting ISVs, and the firm cannot only get ancillary CRM apps out more effectively but also grow out from the CRM market. Gartner predicted that Google would enter the CRM market back in 2007, and while the timing isn’t quite right we still think any further play by Google, deeper than the support for CRM vendors on Google Apps, could be massive.
Lighthouse’s Research Round-up Bulletin loosely follows the Five Forces analysis framework of Harvard professor Michael Porter to summarise analysts’ views of technology trends. For subscription purchase information, please contact us.