On the heels of Oracle Corp.'s agreement to acquire Siebel for approximately $3.6 billion (after accounting for cash reserves), customers and industry watchers alike have scrambled to make sense of the new world order in customer relationship management (CRM).
According to AMR Research's market data, the top CRM vendors represent more than $4.5 billion, or nearly 40%, of that market. Looking just at the vendors that offer full CRM suites (sales, marketing and service modules), the top five command upwards of 65% of the market. Software buyers, particularly in manufacturing industries, have fewer vendor options than ever before -- and if you're an existing SAP or Oracle customer, you may have already decided to rationalize around a single vendor. However, as the top enterprise application vendors battle back and forth for CRM supremacy, the new breed of software-as-a-service (SaaS) vendors keeps moving up the charts. So, where's it heading?
The clear trend toward services-oriented architecture (SOA) is giving buyers more deployment options than ever before. While fewer specialty CRM vendors remain in the market, vendors selling SaaS customer management represent the next wave of innovation and growth. The largest provider in this category, salesforce.com, anticipates approximately $300 million in revenue, most of which derives from subscription CRM. The other large public vendor in this arena, RightNow Technologies, posted $81 million in revenue in 2004, and is projected to continue to see double-digit growth rates. Considering that most of this revenue comes from subscriptions, not services or maintenance, it is most appropriate to compare SaaS revenue to license revenue from the on-premises vendors.
With AMR Research crediting SAP for $525 million in customer management license revenue in 2004, a look at the SaaS vendors show them rapidly gaining market share. These rising stars in the CRM market now have a unique window of opportunity while SAP, Oracle and Microsoft Inc. get their stories straight. Software buyers looking for lower risk deployments and dynamic user pricing are well beyond kicking the tires on SaaS.
But don't think for a minute that the market leaders aren't paying attention. Siebel CRM OnDemand has already established early traction with its subscription service, and SAP and Microsoft appear to be getting in line with claims of imminent subscription CRM applications. Given its newfound popularity, SaaS could simply become an alternate delivery model for traditional license software vendors. However, the need to maintain high renewal rates to keep contract values growing means that a SaaS provider must institute a culture more like a services provider than a products company.
The next 12 to 18 months should serve as a good barometer of license software vendors' success with subscription delivery models. It is not yet clear when SAP or Microsoft will make their SaaS products available; Oracle still needs to figure out how to reconcile the fact that the Siebel CRM OnDemand product runs on top of IBM's infrastructure, and will almost certainly be migrated to a more Oracle-friendly stack.
Although the CRM market is still in flux and product roadmaps in many cases aren't finalized, software buyers certainly have fewer vendors to evaluate. Small and mid-size businesses (SMBs) should view salesforce.com, RightNow and Microsoft as the CRM market leaders, and leave the large-enterprise land grab to SAP and Oracle customers. Although Siebel has made inroads with SMB customers in the past year, it remains unclear how seriously Oracle will continue to penetrate this market. Oracle customers still need to wait for the company's roadmap for consolidating its multiple, acquired CRM components into Project Fusion.
However, companies rationalizing around a single provider should hold on. Joint SAP and Siebel customers will ultimately need to make a decision, but for the time being Oracle will continue to support existing Siebel customers. For enterprises not yet committed to SAP or Oracle but looking for traditional licensed software, vendors such as Onyx Software Corp., Amdocs and Pivotal Corp. (now under the CDC Corp. umbrella) remain independent and provide a good alternative.
Robert Bois is a Research Director in the customer management practice at AMR Research Inc. in Boston.