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December 18/25, 2000

Technology Of The Year

CRM

Customers Take Control

The Internet gives customers more options, making the need for CRM applications more important to businesses than ever.

By Jeff Sweat

Other technologies:

XML: The Language Of E-Business
The young standard spans a variety of industries and has become the universal data interchange language.

Wireless: Taking To The Airwaves
Despite its drawbacks and limitations, wireless Internet access took off this year, with business professionals leading the way

Back to Technology Of The Year Introduction

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he year 2000 brought about a big shift in the balance of power between buyers and sellers, with the Web giving consumers more information, choices, and clout. That's forced businesses to look for ways to transform the way they deal with customers. Many are doing it with the help of customer-relationship management software.

Customer relationships always have been important in business, but for a long time the vendors held most of the cards. Demand for CRM applications is being driven by the fact that businesses have lost some of that control.

"This unprecedented access to information has placed the power in the hands of the consumer," says Dave Self, VP of sales for the Regence Group, an insurance provider in Portland, Ore. "Suddenly, everything you knew about marketing and sales wasn't cutting it anymore."

No longer can vendors sell based on price alone. The Internet has become the great leveler of prices. Businesses must do more to appeal to consumers, says John Linnehan, senior VP of finance and business development at Pioneer Investment Management Inc., a Boston mutual-funds company. The mutual-funds industry, for example, is getting very competitive as a result of the Internet and market entrants, such as Pioneer's new parent company, Uno Credito Italiano. "The competitive nature of business is one of the elements that's driving vendors to move customers to a higher priority," Linnehan says. "Knowing the customer better and providing more insight to help them make important decisions about their portfolio is critical."

Pioneer, Regence, and others are responding to the market changes by buying CRM software that gathers customer data from all types of interactions--customer service, sales, and marketing--both online and offline. The system stores the customer data in a central repository that can be used to form a complete picture of the customer and initiate action to reach him or her.

One of the factors driving CRM purchases is the desire to get a 360-degree view of customers. It's not enough to know what products customers are buying. Companies need to know how they respond to marketing messages and what kind of issues make them go to a Web site for customer service.

Regence, for example, is using Onyx Software Corp.'s Onyx Employee Portal to pull together information about individuals and households so that its salespeople and brokers know more about their customers. Onyx replaces files and handwritten notes scattered across the company's different divisions. CRM lets Regence capture all relevant data and get a complete picture of its customers.

Pioneer is using software from E.piphany Inc. to analyze market and customer information and give that information to the independent brokers who sell its products.

Companies have been buying CRM and its predecessors for several years, but 2000 was by far the biggest year ever, with an estimated $6.8 billion in sales, according to AMR Research. That's up more than 50% from 1999's $4.4 billion.

Some CRM vendors exceeded those growth statistics. Siebel Systems Inc. grew 121% in the first nine months of the year, from $445.1 million to $735.8 million. In 1999, it had grown at only 93%. PeopleSoft Inc.'s CRM business, which resulted from its acquisition of Vantive, accounted for the bulk of its new sales. CRM license revenues doubled to $135 million in the third quarter. E.piphany is a much smaller company, but growth was strong--632%, to $39.1 million, for its third quarter.

Not all vendors are keeping pace. Oracle's application business looked promising, but in its most recent quarter, it grew only 42% to $156 million, well below the 60% analysts were expecting. But such double-digit growth is still impressive when compared with growth in nontech sectors.

Businesses may have wanted CRM technology in the past, but the maturity of the technology convinced many to adopt it in 2000. "It's easier to support a true CRM system now than it was five years ago," says Pioneer's Linnehan.

CRM once meant little more than a data repository attached to rudimentary front-office automation tools. Vendors such as E.piphany, Onyx, and Siebel now offer third-generation application suites.

A maturing market also means the number of players has dwindled. Previous years caused a gold-rush mentality among vendors, who created a confusing array of products for virtually every niche, including marketing automation and sales-contract management. The landscape is now less-cluttered, which simplifies buying decisions for IT managers.

CRM suites expanded in 2000 beyond what was traditionally thought of as CRM: sales, service, and marketing. Siebel, the market leader, rolled out Siebel eBusiness 2000, a new version of its suite that incorporates E-commerce functions. Siebel established its name with tools that made customer-facing employees more effective; Siebel 2000 contains features such as pricing, configuration, and advising engines that walk customers through the online sales process unassisted. Siebel, like several of its rivals, also started to offer broad support for wireless and voice data access to sales data.

Oracle made its largest play in the CRM market to date in 2000 with the spring release of Oracle 11i, an application suite that features both a new batch of front-office applications and integration with back-office systems. Oracle 11i runs all its applications on a single repository, so if a customer places an order, the data is simultaneously entered into sales, financial, and supply-chain applications.

Other CRM companies emerged as potentially powerful vendors because they offer technology that started to gain importance this year. Data analysis capabilities started to merge with CRM this year, as evidenced by products from vendors such as E.piphany, Broadbase, NCR, and Xchange. E.piphany E.5 may have been a watershed for analytical CRM, drawing off its Octane and E.piphany heritage to gather customer data from operational CRM systems, analyze it, and then take action based on the results.

In another trend, vendors such as Kana Communications Inc., which bought Silknet early in the year, started to build CRM functions into E-commerce platforms. It's a combination that businesses welcome. "I now spend less time trying to convince people that their E-business and their CRM initiatives need to be linked together," says Adam Klaber, a partner in PricewaterhouseCoopers' CRM consulting practice.

Both of those trends will continue into the new year, Klaber says. CRM also will become increasingly integrated with telephone, voice, and mobile technologies. Integration with wireless could be especially critical since salespeople, still among the primary users of CRM, are mobile by nature. Wireless support would make it simpler for them to do their jobs.

It's hard to say what will happen with CRM in 2001 and beyond, but fewer than half of businesses polled in an InformationWeek Research survey earlier this year had created a CRM plan or purchased CRM software. That indicates there's still plenty of room for growth.

Since competition isn't going to weaken despite the market's consolidation and customers aren't going to lose the power they've gained, businesses will probably continue to invest heavily in CRM going forward. 2000 isn't likely to be the last year of the customer.

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