For CRM, 2005 was a bumpy ride. Major players in the customer-relationship management field engaged in a slew of mergers and acquisitions, buying competitors of every size — think of Oracle’s purchases, Siebel among them — and while the industry endured this cannibalism, spending on applications and related services and technologies was relatively modest.

Now that last year’s activity is in the rearview mirror, it’s time to focus on the road ahead.

Industry analysts looking at 2006 and beyond point to the growing importance of software-as-a-service (SaaS) and on-demand offerings as trends that will shape how small to midsize businesses (SMBs) and large enterprises alike deploy CRM technologies.

Experts also are forecasting that an increased focus on SaaS will lead to a change in the services side of the industry, with systems integrators and business-consulting firms beginning to form partnerships with software vendors. And the expected completion of Oracle’s Fusion project in 2008 — the company’s effort to stitch together all the applications acquired in its spending spree — also is expected to have a significant effect on CRM.

The industry has matured over the past year, according to William Band, a principal analyst at Forrester Research and the author of a new report, "Trends 2006: Customer Relationship Management." CRM has moved, Band wrote, from times of unrealistic expectations and exaggerated pessimism to acceptance as a core pillar of an organization’s competitive strategy.

"CRM is not going away," Band said in an interview. "It has gone through a cycle of over-inflated expectations, to the sense that the software is not useful at all to a more mature stage, with companies always trying to improve their customer interactions."

Oracle’s Buying Binge

Oracle made a huge splash in January 2005 with the hostile takeover of PeopleSoft and J.D. Edwards. Nearly a year later, the company’s spending spree culminated in the purchase of Siebel, a move that added roughly 4,000 customers and 3.5 million CRM users. That purchase was finalized in January.

Other Oracle acquisitions in 2005 included Oblix, Retek, TripleHop Technology, Times Ten, Context Media, ProfitLogic, and i-flex — all companies sought by Oracle to bulk up its enterprise-software portfolio, with the aim of lowering its dependence on its database business and putting it in a better position to take on SAP, the industry leader in enterprise applications.

Oracle programmers now are working on the Fusion Middleware project, the company’s effort to incorporate the software it has acquired with its existing applications. At a January presentation in San Francisco, Oracle executives said that, halfway to their 2008 deadline, most of the hard work is over. Rather than merging code from several applications, Oracle’s strategy is to take the best features from each and rewrite the code from the ground up.

The rapid consolidation of enterprise-application vendors over the past couple of years is enabling companies to rely on a single vendor for functionality across the enterprise, the Forrester report noted. Organizations exhausted from years of overspending on enterprise resources have started to demand that their CRM applications actually enable end-to-end business processes.

SAP, for example, long has touted the integration of mySAP CRM solutions with back-office capabilities, which now are offered as an enterprise suite. Microsoft is promoting its business-oriented applications as pre-integrated with other Microsoft back-office and desktop solutions.

"I think the industry has recognized that CRM needs to be tailored to how companies actually work," said Brad Wilson, general manager of Microsoft Business Solutions CRM. "If you have an environment with high turnover, for example, you can’t have a complicated tool because you don’t have the training time."

Coming Attractions

According to the Forrester report, three fundamental forces will steer the CRM market in 2006: persistent investment, a shift toward process management, and reliance on consultants and systems integrators. Band’s forecast anticipates a 2 percent to 3 percent increase in spending on CRM application licenses, amounting to some $3 billion worldwide in 2006 alone. He expects that level of growth to continue through 2008.

Total spending on vendor offerings, including maintenance and services, will grow roughly 5 percent to 6 percent each year over the same period, the report said. These expenditures, however, do not include any additional significant investments that buyers might make to support hardware and systems-integration services.

"This shift in relative growth rates reflects the increasing importance of after-market services to the revenue mix of CRM software vendors," Band wrote. "These rates of growth indicate a mature market, matching the anticipated pace of overall I.T. spending. However, the total amount of money to be invested in CRM remains large."

As businesses determine exactly where to spend those large amounts of money in CRM, more and more of them are seeking applications that will paint a precise picture of each of their customers.

"What we’re seeing is a great deal of customization on country and industry levels," said Microsoft’s Wilson. "When Microsoft was developing its CRM, it made sure that it was built on a Web services architecture so that it can be easily adapted to specific local needs and requirements. We don’t ship an out-of-the-box, property-management application, for instance, but those in real estate using the software can easily add apartment information without adding programming code."

Web services is the catch-all term for a software system that supports machine-to-machine interaction over a network.

An increasing number of businesses are choosing on-demand CRM solutions because of greater customization abilities, and integration with other services is the last hurdle for on-demand CRM to cross, said Liz Herbert, a Forrester Research analyst. Many of the larger enterprises today, for example, that have Salesforce.com deployed in some divisions typically do not have it integrated with their SAP or their Oracle software in the back office.

"Going forward, we’ll see a lot of that [integration]. It means that the integration tools are getting stronger," Herbert said. "It also means that the people who help out on the services side, whether it is coming from the vendor or coming from a systems integrator like Accenture or IBM, need to and will be getting more experience doing those more complex integrations."

CRM Standards

The trend for many years has been for vendors to deploy Web-services technology as an extension of existing platforms, applications, and tools as opposed to using it as the foundation for completely new applications and environments, according to the Forrester report.

But with the growing adoption of Web services and service-oriented architecture (SOA) technology for both vendors and enterprises in their platform architectures, these environments will become the "focal point for most application development and integration," Band wrote.

According to Sheryl Kingstone, program manager for CRM applications and infrastructure at Yankee Group, CRM software is in the midst of a significant evolutionary shift resulting directly from the convergence of SOA, Web services, and XML, a markup language that facilitates data-sharing across different systems.

"This new technology foundation enables the assembly, distribution, and management of business solutions in a way not possible before," she said, with the results being faster decision-making and a lower total cost of ownership for CRM customers.

Oracle, with its Fusion project, and SAP are leading the push for CRM standards. Both companies have intensified their efforts to develop prepackaged integration across their suite of products. For SAP, the answer so far has been its NetWeaver initiative, which seeks to put unified integration technologies on a single platform.

"Both of these initiatives aim to align each company’s offerings with the SOA world of the future," Band wrote.

SaaS in Demand

Perhaps no bigger trend has taken hold in the CRM market than the development of software-as-a-service, according to Forrester’s Herbert. "[It is] the one thing that has been changing lately in the CRM world."

No longer the sole domain of SMBs and small divisions, SaaS has moved into large enterprises. "Larger companies are now seeing hosted CRM as a way to put the application in a single department to try it out, and then roll it out to the rest of the enterprise later," said Rob Bois, an analyst at the consulting firm AMR Research.

With Siebel’s CRM OnDemand included in Oracle’s suite of applications, Oracle has what some regard as the leading offering in the hosted-CRM space. This gives the vendor a possible advantage over its chief rival, SAP, and also positions it to compete head-to-head against hosted-CRM pioneer Salesforce.com.

In the UK, Really Simple Systems has set up shop by offering basic CRM tools for campaign management and customer service. NetSuite, meanwhile, unveiled its NetFlex Applications Program, which gives companies the ability to link together project management, payroll, point-of-sale, and other capabilities.

All of these vendors likely will face stiff competition from Salesforce.com, which is aggressively touting the benefits of its AppExchange, an online marketplace for Salesforce.com and third-party applications.

NetSuite is optimistic that the market will respond well to integrating CRM with other enterprise applications. In particular, NetSuite is putting its weight behind NetFlex, which extends the company’s on-demand software to other industry-specific software applications.

"The market is changing, with enterprises moving away from the old-style CRM," said NetSuite chief executive Zach Nelson. "They want more capability and flexibility, and we’re happy to give them that."

Hosts, Hybrids, and Help

SAP’s recently announced intention to create an on-demand CRM service was seen by many in the industry as validation of SaaS. The company’s first CRM product in this arena is SAP Sales, which provides core features for managing customers, contacts, and sales. If you work for a small business, however, you need to look elsewhere. SAP has set a 100-user minimum for its hosted-CRM offerings, which start at $75 per user, per month.

Herbert said industry watchers are "seeing more and more motion" toward the upper midmarket and large enterprise sectors.

Additionally, instead of SaaS being a second separate class of CRM, it is becoming a popular deployment option. Herbert predicted that the industry will see a lot more CRM offerings from SAP and Siebel with an on-demand component or option that also will enable enterprises to perform hybrid deployments or migrate to an on-premise solution from the same vendor.

"We’re starting to see a lot of vendors doing that," Herbert said. "The two vendors who have started offering the hybrid deployments the most are RightNow Technologies and Sage. But going forward we’re seeing a lot more vendors moving in that direction."

In the coming years, SaaS also will lead to a change in the relationships between application vendors and services experts, observers have said, with such business-process mainstays as Accenture and IBM incorporating more and more SaaS offerings into their areas of expertise.

One example of the coming change is the recently announced partnership between Salesforce.com and Accenture. SAP’s partnership with IBM Business Consulting Services, announced two weeks ago at the launch of its on-demand product, will enable the company to provide deeper and industry-specific expertise for business processes, Herbert said, rather than "just blowing out a plain vanilla solution" for managing a sales pipeline.

Customer Is King

Continued high levels of investment in CRM technologies and services will be driven by the never-ending pressures on businesses to create a customer experience that will distinguish them from competitors.

The biggest problem facing CRM vendors and service firms, Herbert said, is developing industry-specific editions of their software and services. CRM’s biggest players — among them Siebel, SAP, and Oracle — have offerings specifically tailored to different vertical markets, such as financial services. But CRM software does not have industry-specific editions that allow companies to jump-start their deployments with a product that already includes, for instance, reports and terminology.

"To date, what we have seen in SaaS has been light templates with very basic modifications to make it appropriate for a specific industry, but nothing deep like we have seen in enterprise CRM," Herbert noted. "That is the next thing that has to change."

The analyst predicted that vendors such as industry leader Salesforce.com — either alone or in conjunction with its partners — will move to address the need. One early example is Salesforce.com’s partnership with Thompson Financial, which has led to the creation of a deeper vertical edition of Salesforce.com.

"I think we will need to see much more of that down the road," Herbert said.

Rather than targeting a specific part of the business world, Microsoft has assumed the mantras of flexibility and familiarity. "We put CRM right on the desktop, along with Office," Wilson said. "Most corporate users are comfortable with Office productivity tools, and so CRM becomes a natural extension of what they’re already doing. It’s not a major leap with a new application."

Microsoft’s next CRM release, Titan, will be out in 12 to 18 months, Wilson said, putting it in the same time frame as the release of Office 12. In fact, Titan is being designed to take advantage of the enhancements to that suite of applications. It is all part of CRM’s transformation from a large, expensive, stand-alone application to an easily adaptable tool that can involve and benefit all areas of the enterprise.

"I’m extremely bullish on CRM in general," Wilson said. "Businesses have an ongoing need to communicate with customers, to work from the sales process and provide great customer service. Those needs don’t go away. I think CRM has had some high-profile missteps in the past, but now we have a great opportunity to make CRM much more usable, and useful."

Author: Walaika K. Haskins, cio-today.com

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