Customer relationship management (CRM) systems have been promoted as essential applications for large firms that want to improve the way they deal with customers. So the suggestion by analyst firm Gartner that CRM vendors are facing a big shakeout may come as a surprise.

Those on the receiving end of CRM systems, however, may breathe a sigh of relief. Anyone who has suffered at the hands of, for example, telecoms firms that rely on automated CRM systems that cannot even answer the phone let alone communicate properly, will wonder how CRM managed to gain a foothold at companies at all. It often seems that many of these systems are based on the assumption that the customer is always wrong, especially if customers step one inch outside the bounds of an on-screen script.

Niche markets
One of the problems with CRM systems, as outlined by Gartner analyst Ed Thompson, is that many come from software vendors that want to sell applications as off-the-shelf products. Speaking at Gartner's recent European Symposium, Thompson suggested that there are several hundred companies in Europe that call themselves CRM suppliers, but only about 200 of them actually justify the term. By 2003, he estimated only 50 of them will still be in business.

Most of those 50 will be in niche market sectors, specialising in delivering the functionality that well-defined vertical markets require, said Thompson. He argued that few of them would sell broadly-based CRM applications of the Siebel variety.

Thompson said the current problem is that users may think they want a generic CRM solution, but in practice their requirements always end up being specific to their individual business practices and marketplaces. No single supplier comes close to providing such diversity of functionality in a single, generic CRM package, he said.

Thompson added that as a result, most CRM vendors will disappear, either by going out of business or through the process of merger and acquisition.

Gartner research director Andy Kyte said this pattern will reflect a wider trend he sees in the way firms spend money on IT. He said much of their spending will be outside the traditional IT back office, and a good part of it will probably be spent outside of the IT service departments of firms.

Kyte predicted that more money will go to the suppliers of outsourced services. This presumably means the application service providers (ASPs) hosting software online, though Gartner predicts that ASPs will also decline in numbers over the next four years. Gartner's head of European research, Peter Sondergaard, has predicted that 80 percent of existing ASPs will be gone by 2004.

Another market research company, AMR Research, takes a completely different tack, suggesting that the CRM market will grow, as vendors transfer their attentions from the now flattened enterprise resource planning (ERP) market. AMR predicts that CRM applications will account for some 26 percent of worldwide corporate applications software sales by 2004, or nearly US$21bn.

Business goals

What seems to be happening, especially now that enterprises are well into their post-year 2000 planning and development processes, is that they are starting to look far more closely at what their applications actually do for them. This is then compared with what they want to achieve in terms of business management and development.

The market for new ERP installations may have flattened, but there is still much work to be done on integrating ERP applications into business process, and on weeding out aspects of generic ERP systems that are not relevant to individual firms.

The same pattern is predicted for CRM by Gartner's Thompson. Though currently firms are rushing to buy CRM systems, the real problem for many will come as they try to fully integrate CRM with the rest of their applications and processes.

Until this integration takes place, many firms will be working with systems that build very poor relationships with their customers. To improve the situation will re-quire some degree of modification and tailoring to make generic CRM applications match specific enterprise requirements. And Thompson predicts this will inevitably lead to a savage shakeout of generic CRM vendors, with the likely outcome being that only two or three will survive.

The ones that do survive will undoubtedly be those that componentise their generic offering sufficiently to allow the niche CRM vendors to use those components as the building blocks of their own vertical market solutions.

In the end, the long-term winners in CRM, ERP and other enterprise software sectors will be those companies that put higher value on understanding the users' requirements than on the technology.

And while many of these winners may be among the outsourcing service suppliers, it is likely that some of the most accomplished may come from the ranks of IT departments in the vertical markets they serve.

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