Vendors, users grapple with CRM shakeout

The economy's downturn and a consolidation in the CRM (customer relationship management) market are forcing companies looking to broaden their CRM systems to take a hard look at the bottom line, now more than ever.

CRM projects have been plagued by runaway costs, but the tight fiscal times make the search for hard ROI even more critical. CRM vendors are feeling those tougher expectations, and some are combining forces to offer broader functionality and adapt to the economic environment.

Last week's merger of Kana and Broadbase, two financially ailing CRM companies, underscored the current market mandate to unite to create a more complete software package.

"A lot of [customers] are very nervous about where the economy's going and are hesitant to lock down their 2001 budgets, and that's affecting all CRM vendors across the board," said Paul Rodwick, vice president of markets development and strategy at CRM vendor E.piphany, in San Mateo, Calif. "Our advice is to think big, start small, and act quickly."

Analyst firm Meta Group this week issued a preliminary report urging companies to proceed with caution in CRM deployments, saying a slow, deliberate rollout is the best way to ensure ROI. That puts companies deploying CRM in a tricky spot because another CRM tenet dictates that they implement a product suite enterprisewide in order to ensure their customers get the best possible service across all channels.

"The dark side of CRM is that most projects are not financially justifiable, so companies take a leap of faith [to do them]," said Aaron Zornes, executive vice president of application delivery strategies at Meta Group. "There is a chill across America as IT budgets are getting scrutinized."

In its survey of 800 businesses and IT officials, Meta also found that nearly two-thirds of CRM projects are designed to improve the company's workflow, rather than enhance the customer's experience. That approach is short-sighted, Zornes said, because it works against the ultimate goal of CRM, which aims to keep buyers loyal and attract new ones.

A customercentric approach is being taken at gloss.com, an online partnership between Estee Lauder, Chanel, and Clarins that is set to launch this summer. Doug Dalton, CTO of the San Francisco-based beauty products triad, said the customer's point of view must be the centerpiece of the online effort because the products are highly personal.

"It's imperative to maintain high levels of customer service," Dalton said. "All of our customer representatives have met with the brands involved and gone through extensive training so they can provide that level of service."

Many companies, including British Airways, Allstate, United Airlines, Delta Airlines, Cisco Systems, Avaya, and L.L. Bean, have moved ahead on customer service in recent months by hiring a CCO (chief customer officer).

But whether or not it has a CCO, a company will face intriguing, tough choices when it comes to implementing a CRM solution.

While Kana, Broadbase, Onyx, Firepond, and even E.piphany struggle financially, the bigger players such as Siebel Systems are also feeling the economic pinch.

With PeopleSoft and Siebel offering across-the-board CRM solutions, the smaller players could be in for even more trouble unless they find ways to clearly differentiate themselves in the market or expand their offerings.

"There is definite pressure to offer a full suite. A few niche players will of course always be around, but some will be bought or go out of business," said Sheryl Kingstone, a CRM analyst at the Yankee Group in Boston. "There could still be a few standing vendors that just offer customer service software for the small business market, or a dedicated marketing services company. However, the pressure is to offer a full suite of services such as sales, service, and marketing."

Greg Gianforte, chairman and CEO of Bozeman, Mont.-based e-CRM vendor RightNow Technologies, pointed to his startup's self-service Web technology as a differentiation that will set the company apart in the marketplace.

"Companies are either growing and experiencing increased customer inquiries or looking to make their organizations more efficient," Gianforte said.

Stamford, Conn.-based Pitney Bowes, implemented RightNow's Web-based CRM system last year, and saw ROI earlier this year when the U.S. Postal Service upped postage rates.

Pitney Bowes, which has about 1.3 million customers nationwide, traditionally sees a large spike in call-center activity when postal rates increase. But in January the volume of calls was half of what it was during the previous increase, a turn of events that Laura Gibbons, Web support services manager, credits to online self-service.

"The first day we had more than 86,000 customers visiting support," Gibbons said. "If they had a tech issue we would redirect them using the RightNow tool, sometimes to another part of the country for an agent in the call center."

Vendors, users grapple with CRM shakeout

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