Oracle's acquisition of PeopleSoft says a lot about the current state of the software market. The twin pressures of consolidation and commoditisation are shaping the industry -- forcing enterprise software providers to look for new opportunities through changing focus or acquisitions.
The market for customer relationship management (CRM) software could be seen as a microcosm of the issues affecting the rest of the business application market. According to industry analyst DataMonitor, with a saturated enterprise CRM market, vendors are turning their attention to smaller companies. Global CRM spend among small and medium-sized businesses will total close to $2bn by 2008 – more than double what it is today.
"A new CRM market is being created, one which encompasses those businesses which were not part of the initial CRM adoption phase; CRM is being pressed into the mass market," says Datamonitor Technology analyst Tom Pringle.
This massive growth in companies looking to invest in CRM is especially surprising given the horrendous reputation the technology earned itself in the late nineties and early 2000s. CRM horror stories of hugely expensive but inefficient implementations were commonplace. But somehow the CRM vendors seem to have not only escaped that legacy but have convinced customers that another previously risky technology -- hosted or on-demand applications -- also makes sense.
The single biggest debate shaping the CRM market at the moment is the means by which the applications are delivered to customers, says Pringle. Traditionally, companies such as Siebel have made a good living from selling on-premises applications to large corporations but a trend towards hosted applications targeted at smaller companies has altered the dynamics of the CRM market.
Two of the biggest players in the hosted software arena currently are Salesforce.com and RightNow Technologies. Both firms have announced massive increases in their customer base during 2004, which has fuelled moves by both companies to launch successful IPOs.
In October Salesforce.com announced it had added some 85,000 individual subscribers to its online customer information system, an 85 percent increase on the same time last year. RightNow also reported a 78 percent jump in third-quarter revenue and announced it had recruited around 26 public sector customers in the UK alone.
Salesforce.com is probably the better known of the two due to it aggressive marketing campaign over the last two years fronted by rambunctious chief executive Marc Benioff. The Salesforce.com mantra is based around the concept of 'No software'. The company claims to be all about eliminating unnecessary infrastructure by allowing companies to use its hosted applications rather than having to go through the hassle and expense of installing software locally. The Internet has replaced the operating system as the integration layer for applications, Salesforce.com claims.
While Salesforce.com, as the name suggests, is concerned with the sub-section of CRM that relates to applications used by salespeople to manage contacts and leads, RightNow Technologies operates at the other end of the sales process. Montana-based RightNow deals with applications for call centre and customer support. Although it is less visible than Salesforce, the company has a considerable reputation in this area having accrued around 26 different UK public sector customers in the last year.
RightNow's chief executive Greg Gianforte claims that hosted CRM have succeeded this time round because of advances in the architecture. "In the first go-around the applications were not written for a multi-tenant architecture. Essentially they were taking client server apps, taking a rank of hardware out of the client's location and putting it in a co-lo facility, adding a margin and charging the customer back. What is different this time is that the applications have been written from scratch for a multi-tenant architecture."
RightNow and Salesforce may appear to have almost complimentary market focuses at the moment -- a merger would make sense -- but both firms are very focused on spreading the breadth of their product sets and being able to offer a complete range of CRM applications including sales, customer support, analytics and marketing.
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