CRM Market Feels Effects Of Recession

CRM vendors reported falling revenue this quarter, and more of the same may lay ahead.

InformationWeek Staff, Contributor

January 24, 2002

3 Min Read

Customer-relationship management vendors reported falling revenue this quarter, and more of the same may lay ahead. Analysts such as Gartner and Meridien Research maintain CRM software sales will be flat year over year as businesses try to leverage existing technologies to boost customer service and the bottom line.

Siebel Systems Inc.'s fourth-quarter profits slid 17% from the same quarter last year, but the company insisted it will see earnings and revenue growth in 2002. Siebel posted net income of $65.9 million or 13 cents per share, compared with $79.5 million or 15 cents a share for the same period last year. The software provider beat Wall Street consensus estimates by 4 cents. Total revenue fell to $481.4 million compared with $581.6 million last year and software license revenue fell $250.2 million from $365.2 million last year. Almost half of the quarterly revenue came from services.

As with Siebel, a large portion of Pivotal Corp.'s second-quarter revenue stemmed from services. Approximately 58% of its revenue came from services, with software license sales accounting for 42%, the vendor said Thursday. Revenue slipped to $16.5 million from $25.7 million in the second quarter of last year. Pivotal reported net losses for the period ended Dec. 31 of $63 million or $2.63 cents a share, compared with a net loss of $4.7 million or 20 cents a share year-on-year. E.piphany Inc. reported revenue Thursday of $28 million, down from $49.2 million in the fourth quarter of last year. Including one-time charges, the company reported a net loss of $36.8 million or 53 cents a share for the period ended Dec. 31.

The economy is pushing technology buyers to squeeze as much value as possible from their existing systems, which may deter them from purchasing more CRM software this year. "When things get tight and you can't spend, spend, spend, you tend to stop and think, 'What this all about?'" says Tom Richards, research director CRM for Meridien Research. "Companies will turn inward and look to extract more value from investments they've already made."

The key to leveraging what's already in place will be to focus on integrating and optimizing legacy systems, databases, and other back-office software with existing CRM applications. Vendors are already catching on. Pivotal last week introduced Pivotal Integration Engine, a toolset designed to connect legacy systems and data sources with Pivotal CRM applications. Even so, many large businesses are focusing on integrating customer-built systems, which won't provide a source of revenue to the CRM vendors.

Harrah's Entertainment Inc. this year will integrate a custom-built yield-management system with its Web site. The yield-management system offers room rates and incentive packages to gamers based on information it gets from the Total Rewards Loyalty program system, which was also custom-built by Harrrah's IT department. By integrating it with the Web site, loyalty program members will be able to go online to view their own personalized incentive packages, such as free hotel rooms, reduced rates, or coupons for dinners and drinks. Members will then be able to click on a reward and activate it via the Web. Yield management may not sound like a traditional CRM application, but for Harrah's it is.

Businesses are blurring the line between CRM and their other systems, and viewing CRM as a philosophy that permeates nearly every technology deployment. Vendors are attempting to boost their products by adding non-traditional CRM apps to them for this reason. PeopleSoft Inc. will add a product configurator and order-capture functionality to PeopleSoft 8.4, its next rendition of PeopleSoft CRM that will be released next March.

Analysts still contend the CRM market will continue to do better than other technology sectors, but the years of 20% to 30% growth may be over.

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