CRM Industry Predictions for 2005: Five Key Trends

I have a good feeling about 2005! We should see continued adoption of customer-centric business practices—the core of what CRM is all about. And, the overall market for CRM solutions and services will continue to expand by 5 percent to 10 percent, according to the industry analysts who count these sorts of beans.

Within this broad positive trend, there will be plenty of opportunity for winners and losers. CRMGuru research shows that, while two out of three CRM projects are successful (they generate ROI), most projects are still falling short of delivering strategic value by growing loyalty, revenues and profits. Corporate Performance Management can help.

On the technology front, a growth year won’t favor all software vendors and service providers equally. Those prepared to offer cost-effective and modular solutions to address real business problems will do quite well. The on-demand camp should have another banner year, as will marketing tools vendors.

Here are five trends worth watching in 2005.

  1. Corporate Performance Management: The Missing Link in Strategic CRM Success

    We can yammer that CRM is a business strategy all we want, but the truth is that it isn’t—until CRM is integrated into the measurement system of top management. Here’s a quick test: Is your CEO accountable for any customer-based metrics? If not, then CRM is somebody else’s job, and it’s probably a tactical initiative at best.

    Corporate Performance Management (CPM) means using a set of objectives and supporting metrics that together keep the organization on track. CPM gurus, including Kaplan and Norton, who introduced the Balanced Scorecard, recommend developing financial, customer, employee and internal objectives that together help executives run a business in the same way you depend on a car’s instrument panel.

    This year we’ll see tighter integration between CPM and CRM. CPM provides the strategic linkage to the business, along with tools to analyze customer-related metrics and disseminate throughout the organization. Big companies might look to analytics and business intelligence vendors like SAS and Cognos. There is also a raft of specialized CPM vendors, such as Active Strategy and Pilot Software. And if you’re not monitoring customer satisfaction and loyalty, consider companies such as CustomerSat, Walker Information or similar.

    The point is not that you need to buy CPM software to make CRM work. It’s that the discipline of implementing Corporate Performance Management will ensure that customers get their seat at the boardroom table. What gets measured gets done.

  2. On-Demand CRM: The Little Engine That Could

    Looking back just a couple of years, it’s hard to believe how far the market for hosted or on-demand CRM solutions has come. My hat is off to, RightNow, NetSuite and UpShot (now part of Siebel) for pioneering software-as-service. (Read more about this in my article, Leaders of the On-Demand CRM Revolution.)

    We’ll see continued robust growth in this segment in 2005, exceeding 20 percent overall. RightNow and went public and launched full CRM suites in 2004 and appear headed up-market. This year they’ll need to refine their new products and learn how to sell and support complete CRM systems in large accounts. Welcome to the big time.

    No longer asleep at the on-demand switch, Siebel has a competitive product and a game plan that looks good on paper. But, Siebel can do little to stem the success of on-demand vendors outside its customer base, and I’m skeptical Siebel will increase total customers and users at the market growth rate. Still, on-demand will be a vital part of Siebel’s CRM-for-everyone, anyway-you-like-it strategy, and that may be good enough to protect its 4,000-customer install base and compete with Oracle and SAP.

    In the Small and Medium Business (SMB) arena, it’s all NetSuite, all the time. Siebel may prove a threat eventually, but for now, what NetSuite needs is an IPO-based cash infusion to really ramp up. RightNow and will get their fair share of the SMB pie, too, where back office support is not a requirement. However, this space is just too wide open. Look for another big SMB vendor to get the on-demand fever this year, such as Best Software or Microsoft, or even non-CRM players like Intuit or Yahoo!

  3. Analysis Without Paralysis Marks Rapid Growth of Customer Analytics

    Thankfully, the tide appears to be turning on spam. While CAN-SPAM legislation didn’t help much, anti-spam tools are getting much better. And hey, a few big lawsuits by AOL, Microsoft and other ISPs might encourage spammers to seek other business.

    This is one of the many challenges facing marketers (the Do Not Call Registry is another) trying to optimize interaction channels. Email has been overused and abused. Phone calls are still too expensive, despite the offshoring trend, but customers like to talk to a real person. Web usage is growing, but direct mail refuses to die. How can businesses use the right channels for the right things, balancing customer satisfaction, revenue and cost?

    Coming to the rescue again in 2005 will be Customer Intelligence applications to figure out customer profitability, optimize response to marketing campaigns and help agents deliver real-time offers that make customers smile. Improved packaging puts more power at the fingertips of professional users, not just Ph.Ds.

    In the specialist category, I like the prospects of SAS, the industry pioneer and market leader, and Unica, which has moved from the role of “promising upstart” into bona fide contender. Unica will need to raise more money with a successful IPO in 2005 (the S-1 was filed Nov. 19, 2004) and, like SAS, contend with multi-function gorillas Oracle, SAP and Siebel, which are all ramping up their analytics offerings. E.piphany, which pioneered customer analytics years ago but since then tried to diversify, appears stuck in the Twilight Zone between the Big Three and niche players.

  4. True Leaders Emerge in Fragmented Mid-Market CRM

    The Small and Medium Business (SMB) market is slowly consolidating. In 2005, for the first time we’ll see long-term industry leaders emerge for the mid-market. (Small business is another story.)

    In the past, it’s been common to mention Onyx, Pivotal and SalesLogix as mid-market CRM leaders. But each lacked the scale to truly dominate. Onyx may be the last mid-market specialist vendor left standing when the consolidation music stops playing. An acquisition appears overdue. Pivotal has already been acquired by CDC Software (chinadotcom), but its strategy is still murky.

    That leaves SalesLogix, a unit of Best Software, in the … er … best position because of a parent company with lots of customers, marketing muscle and an impressive array of SMB solutions for front and back office. Microsoft will be another market frontrunner, continuing its good progress into its third year as a real CRM vendor. However, based on data we’ve been collecting the past few months, customer satisfaction is only average in the CRM industry and significantly behind SalesLogix. More work is needed.

    In the on-demand space, privately held NetSuite is growing fast but needs a successful IPO or other case infusion. And NetSuite is still earning its stripes as a full-fledged CRM vendor. Meanwhile, CRMGuru research shows is a real force in the SMB market, something the company seems to downplay as it tries to reposition itself for bigger enterprises.

    And Siebel? Despite a well-thought-out plan to enter the SMB market (again), I don’t see the CRM industry leader as a serious SMB threat in 2005. You can’t scale down an enterprise software product, and even if you could, it takes time to build sales channels. But things could get interesting in 2006.

  5. Large Enterprise CRM: Three Still Standing, With the Game Clock Running

    For 18 months, all the attention has been on Oracle’s acrimonious takeover of PeopleSoft. Love it or hate it, it’s a brilliant move that positions Oracle for the long-term. Maybe now Oracle will stop muddling along and become a real CRM powerhouse.

    Despite concerns about Oracle’s plans, PeopleSoft’s customers won’t leave because they really can’t. Oracle shouldn’t confuse exit barriers with real loyalty, but this does give Larry’s company time to integrate and rationalize product plans. There goes 2005.

    Siebel Systems can use this window of opportunity to fully launch its new strategy which—let me see if I have this straight—includes custom CRM solutions for large enterprises, packaged solutions sold via channel partners for SMBs and on-demand for everyone. Hmmm, what do you get when you try to focus on everything? I think new CEO Mike Lawrie runs the risk of thinking he’s still at IBM, where you really could do everything.

    Meanwhile, the large enterprise CRM winner for 2005 will be SAP. Best solution? No. Biggest market share? Don’t believe those analyst reports. No, SAP will have the best year simply because it has stuck with a game plan crafted five years ago. Slow and steady wins the race.

    Problem is, the race isn’t over. Consolidation is running wild in the IT industry, so my fearless prediction for 2005 is that IBM or Microsoft will acquire Siebel. IBM is getting boxed out of the database business by Oracle (via the PeopleSoft buy), and Microsoft will eventually get into the large enterprise software business. Maybe that time is now?

Well, that’s it for my annual reading of the CRM industry tea leaves; I hope you found my predictions interesting and useful.

More than that, I trust you’ll let us know how we can help you succeed with CRM. At CRMGuru, that’s what we’re here for!

Write to me any time at, get involved in our Think Tank discussions, read our newsletters or browse the site. Then I can safely predict one more thing: We will help you put customers at the heart of your business and money on the bottom line.

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