Midmarket CRM vendors close gap

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When Web-based and other "lite" versions of customer relationship management software arrived several years ago, most marketers felt they were facing a clear trade-off: cost savings and reduced complexity in exchange for limited functionality and scale.

But, as the success of midmarket vendors such as has shown, thousands of companies opted to turn their backs on traditional enterprise CRM packages in favor of these upstart alternatives. Now the equation is changing again, as midmarket CRM vendors aggressively add functionality that aims to close the gap with so-called high-end CRM packages.

Among the notable new capabilities offered by an array of midmarket CRM vendors are offline versions of Web-based CRM, tighter integration with Microsoft Outlook/Exchange and other back-end systems, and simpler ways to customize the software.

Marketers today can get this advanced functionality at "rent-a-CRM" prices that typically start at less than $100 per user per month. At that cost, companies can get a quicker return on investment than with typical large-scale software deployments.

"We are increasingly being put side-by-side [by customers evaluating solutions] with large enterprise application companies," said Kaiser Mulla-Feroze,’s director of product marketing. "That’s the first sign things are changing. But the functionality gap is closing as well. Low-cost is important, but it’s not always the overriding issue. What’s really important is the success of companies’ CRM initiatives. What we’ve seen is that companies are looking at true metrics of CRM success, and not just at the bells and whistles of the software they’re looking to buy."

In a sign of the times, last month rolled out a new version of its Web-based software, dubbed S3. The release boasts new features such as a built-in content management repository, richer HTML creation tools, deeper Outlook integration and more granular administrative tools for sharing data and setting business processes.

Market due for shakeout

Yet even as vendor offerings improve, analysts continue to warn that the CRM market is due for a shakeout. The proliferation of mid-market vendors, the entrance of Microsoft into the CRM space earlier this year and the increased focus on the midmarket by larger players such as Siebel Systems Inc. and SAP AG make it likely that more than half of today’s midsize CRM vendors will merge or be acquired, according to Gartner Research CRM analyst Wendy Close.

In fact, the CRM market has actually shrunk in recent years—from $3.7 billion in 2001 to $2.8 billion in 2002, according to Gartner. That’s a 24.7% drop, as companies draw back their purse strings and focus on smaller, more tactical CRM projects.

"Today, every company looks like a midsize company," said Keith Raffel, chairman and founder of CRM vendor Upshot Corp. "Even in Fortune 500 companies, divisions are making individual decisions. At one time, companies had RFPs out for 1,000 seats. Now, their divisions are doing 100-seat deals."

The offerings of midmarket vendors seem to meet the requirements of sales and marketing organizations that want a quick payback on technology expenditures. Yet those companies don’t want over-simplified solutions, nor a technology straitjacket that limits their ability to respond to customer requirements, said Bo Manning, president and CEO of CRM vendor Pivotal Corp.

"People ask, do companies want hosted or on-premise software? What they are really saying is: Which of two ugly, unsatisfactory options do they want—simple but limited or powerful but impossible to deploy?" Manning said. "Our answer is: They want to start simple but not be restricted in how powerful they grow. Flexibility is the primary requirement."

To meet those requirements, Pivotal offers its solutions in hosted and on-premise versions, and it runs an off-shore development arm—with development costs priced at about $50 an hour, vs. $250 an hour for a high-end consultancy—to help companies customize their CRM deployments when necessary, Manning said.

Midsize companies want first-class software, but they also want to support first-class business processes, said Steve Dahill, senior VP-worldwide sales at online CRM system provider SalesNet. "If you go to a large company, they’ve got their sales processes hard-wired into their SAP or Siebel deployment. That’s very complex and very expensive," he said, noting that SalesNet offers graphical tools that let midsize companies act "bigger" than they really are. "We offer inexpensive tools that get you the same big-company capabilities."

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