It is not a good time to be in the customer relationship management (CRM) software sector. Aside from the impact of tighter IT budgets, vendors are fighting a rearguard action against the perception that CRM often fails to deliver on many of its underlying promises.
But there are also intensifying pressures from outside the market. Many pure-play CRM companies are losing ground to vendors of enterprise resource planning (ERP) applications, as these companies increasingly offer CRM software that is directly integrated with a wider suite of business applications. This trend was highlighted by the latest financial results from CRM vendors.
Siebel Systems, the leading CRM specialist, reported revenues for its second quarter down a painful 15% to $405.6 million, compared with the same period a year ago. Most of this shortfall was due to a dramatic drop in software licence sales, which fell 41% from $286.8 million to $170.1 million.
Siebel is struggling to persuade the bulk of its customer base to upgrade to Siebel 7, the latest version of its flagship CRM suite. To date, only 60 out of its 3,500 customers have completed the upgraded, according to analyst Judy Bijesse at AMR Research, although another 700 are in the process of migrating. "This is far below the 90% figure that [CEO] Tom Siebel initially predicted would begin upgrading during the first year," says Bijesse.
There was also a reduction in the number of large deals Siebel completed. Siebel sold only three contracts of more than $5 million in its latest quarter, compared to 12 in the first quarter of 2002, according to AMR.
The situation is even tougher at Siebel rival E.piphany. Its sales slumped 40% to $19.4 million for its second quarter as sales to new customers all but stalled. In the quarter E.piphany added just six new customers, according to company sources, a performance that resulted in software licence sales of just $6.8 million. Much of that hiatus stems from the fact that customers are awaiting a new release of the company's software. Having launched the E.6 Platform in the first half of the year, the complete product will not be available until the third quarter.
Hoping to rekindle sales, the company has put in place some alternative sales channels. In July 2002, it signed a deal with systems and software giant IBM for the two companies to jointly sell and market each other's CRM-related products.
One of E.piphany's closest competitors, Kana, is also suffering. The company reported poor second quarter revenues of $17.2 million, a 27% drop on its year-ago revenues. Much of that was due to a drop in service revenue; software licence sales fell a less dramatic 13%. After an acquisition binge that culminated in its purchase of analytics software vendor Broadbase in April 2001, Kana has been building a broad, integrated suite of CRM products that covers marketing automation, analytics, email management, call centre and self-service software.
At least some of that damage is being inflicted by the ERP vendors. PeopleSoft, for one, appears to be grabbing market share from several pure-play CRM vendors. Analyst Monica Barron at AMR says PeopleSoft's CRM sales force performed well during the latest quarter, grabbing 80 CRM contracts – many of which were with new customers. Barron also lauded the rapid integration of product configuration software acquired from Calico in December 2001 into the PeopleSoft CRM Collaborative Selling Suite. However, the company's CRM sales failed to offset an 11% drop in the company's total revenues of $482.2 million for its second-quarter of 2002.
Business applications software giant SAP also poses a big threat to established CRM vendors. The company's strategy of selling its MySAP CRM software alongside its ERP suite MySAP.com seems to be working. Although SAP's total revenues were down 4% to $1.6 billion, analysts point out that its CRM modules are selling well.