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Aaron Ricadela
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CRM's Fast-Changing Landscape

One of the hallmarks of software markets is that they change quickly, but the CRM sector seems to be in overdrive.

One of the hallmarks of software markets is that they change quickly, but the CRM sector seems to be in overdrive. Just a few years ago, companies that wanted to buy the best-reputed software for managing sales and customer service went to Siebel Systems. Lightweight Web software was small potatoes, and Microsoft wasn't even in the game. How times have changed.

On July 8, Siebel told investors it would miss its earnings and revenue forecasts for the second quarter, with sales of new software licenses dropping 18% from last year. That isn't good news for new CEO George Shaheen's management team, which is trying to right the once fast-growing company, which has struggled for the past four years. Instead of hefty deals for perpetual licenses to CRM software, many companies are opting for so-called "subscription" CRM agreements that require less upfront cash in return for not really owning the software. And that's OK with many buyers. "It isn't necessarily only a money issue with hosted software," says Sheryl Kingstone, an analyst at consulting firm the Yankee Group. "You're also selling to business managers who want to avoid an IT project," or a sign-off from IT to buy. It's a big reason online CRM vendor saw a 900% increase in profits for its April quarter, and claims 15,500 customers (that's organizations who've bought in, by the way, not end-users, who number many more).

Siebel recognizes the trend, and it's updated its hosted product, Siebel CRM OnDemand, eight times in less than two years. Other big software companies are sniffing the on-demand ground as well. SAP demonstrated a browser-based version of its CRM software in Europe this spring, and the German software company has been calling on analysts to research the market for a hosted customer relationship management product. It even reportedly has a few choice names picked out.

Now Microsoft is touting "subscription" pricing of the new version of its CRM suite due early next year. Coinciding with a broad beta test of CRM 3.0 this month, Microsoft said it would give its channel partners the option to host the product on behalf of customers. But customers need to be careful--CRM 3.0 still comes on CD-ROMs, and upgrades won't be seamless like they are with all-online offerings like Salesforce's. And some resellers that host Microsoft's new CRM product may still require servers and database software running at customers' sites, says Liz Herbert, an analyst at Forrester Research. "Even with Microsoft's hosted option, it's not really software as a service," she says. "Microsoft can help out with how the software is paid for, but it's still a very different model than we're seeing with a vendor like Salesforce, or Siebel's CRM OnDemand."

On the other hand, easier, more transparent integration with Microsoft Outlook and its ERP products than other software companies can afford are checks in Microsoft's column. "We're the only guys in the market who don't care if you forget you're using our application," says Brad Wilson, Microsoft's general manager for CRM who joined the company five months ago after leaving the old PeopleSoft. When Microsoft's already branded everything else on the computer screen, it's OK if its CRM GUI looks like Outlook.

In addition to the changes underway at the big software vendors, a raft of startups is also hoping to sell Web-based CRM. A sector that looked sewn up just a couple of years ago might once again be wide open.

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