As The World (Of CRM) Turns

A delayed IPO, planned IPOs, a verbose CEO, new products, and partner-channel acceptance are all part of the drama-filled market for customer-relationship-management software.

Tony Kontzer, Contributor

May 18, 2004

3 Min Read

In the highly competitive market for customer-relationship-management software, the initial public offering of stock planned by RightNow Technologies Inc. could beat that of Inc. The latter's IPO, which, following a number of delays, was slated for next week, appears to have been postponed again.

Salesforce, which, like RightNow, offers on-demand CRM software as a hosted service, is one of the most eagerly anticipated tech IPOs of the past few years. But it has been pushed back repeatedly, first because of Securities and Exchange Commission scrutiny of its subscription-based business model--which books revenue over the long-term rather than as an up-front sale like traditional software vendors--and now allegedly because of the actions of its verbose founder and CEO, Marc Benioff.

Neither Salesforce nor the SEC would comment on media reports that the IPO has been delayed again because of Benioff's recent sale of shares in the company and his decision to let a reporter trail him for a day for a lengthy article that appeared in The New York Times on May 9. (The SEC presumably frowns upon extensive communications with the media immediately before an IPO.) No new date for the IPO has been revealed.

Salesforce's saga aside, RightNow's move last week to join Salesforce in the IPO queue is one of several signs that the market for hosted CRM software is maturing. Also last week, a new vendor, Entellium, entered the market with a service that's being distributed entirely through partner channels, and Siebel Systems Inc. said it would introduce eight vertical-industry-focused editions of its on-demand CRM offering later this year. Finally, Salesnet revealed that more than half of its revenue is now coming through partner channels.

Salesnet CEO Mike Doyle says he's encouraged by RightNow's IPO plans, as it indicates the CRM market is strong enough to support multiple publicly traded vendors. Will Salesnet, which is venture-backed to the tune of $32 million, be next? Doyle, who's been contacted by investment-banking firms seeking his company's plans, says a possible IPO next year isn't out of the question. "What I've said to them all is that we're waiting to see" how the market receives Salesforce and RightNow. Doyle says the growth of channel distribution of hosted CRM is good news, because it indicates that customers are seeking out hosted CRM rather than vendors having to push products into the market.

One Salesnet customer says going public can solidify the appearance that a vendor has long-term viability. Joe Riley, senior VP and head of corporate sales for Eastern Bank, uses Salesnet to manage the bank's small-business sales team, but he says the possibility of it becoming the bank's CRM platform remains a stretch in part because of Salesnet's youth. "I think an IPO would move that along," Riley says.

Whether other vendors follow Salesforce and RightNow down the IPO path, hosted CRM figures to become an increasingly important part of the larger CRM market, says Tim Bajarin, industry analyst with Creative Strategies. But Bajarin warns that it will take a few years for hosted CRM products to deliver the kind of integration with other enterprise applications that larger companies need to see before making any big commitments. Users agree that integration challenges are holding up wider adoption of hosted CRM. "If you crack that, the hosted solution becomes a lot more attractive," says Patrik Riese, director of CRM for Saab Cars USA.

Research firm IDC estimates the U.S. market for Web-based and Web-services applications--of which hosted applications vendors make up a significant part--will grow by 41% annually, reaching nearly $3.7 billion in 2008, up from $665.9 million last year.

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