Soft Landings

Economic slowdown causes a shift in client priorities, say CRM systems vendors

AS THE ECONOMIC DOOMSAYERS beat their pans and shout their dire warnings, the question arises: Have vendors begun to feel the sting as marketers take austerity measures?

While no supplier interviewed was willing to say its sales had slowed, most acknowledge there has been a change in their customers’ priorities. This is especially true for firms that sell CRM software and infrastructure products, such as data warehouses and call-center automation packages.

Several dealers say marketers binged on infrastructure software and hardware during the past few years, and are now focusing on analytic software and campaign engines. For much of 1999 and the early part of 2000, spending centered on setting up e-commerce initiatives, data warehouses or automating assorted sales functions.

“The back end has been upgraded, but the front end is still oftentimes antiquated and needs to be engineered,” says Bill Murphy, vice president of marketing automation at Siebel Systems Inc., San Mateo, CA. “The focus is on analytics. [Marketers] are seeing tremendous benefits in knowing their customers: who they want to invest in and who they want to manage out.”

“There is no central nervous system coordinating those,” adds Andy Frawley, chairman and CEO of Boston-based Xchange Inc. According to Frawley, demand is accelerating for products and services that can produce a return on investment within five or six months. By contrast, demand for the operational equipment is slowing down.

What’s driving this is a squeeze in margin. Marketers Frawley has spoken with say they will still make their projected revenue and sales figures for the year. But executives at several Fortune 100 companies think they may experience a margin squeeze. “They’re saying the problem is that the incremental cost of the next dollar of growth is getting higher and higher,” he offers. “It’s creating a bottom-line problem.”

In such an environment, it’s not surprising that products that can drive cost reductions are becoming an easier sell. “The vice presidents of service are being asked to cut costs. They’re asking, ‘How do we prevent hiring more people in our call center?’” observes Walt Rossi, vice president of product promotion and field marketing at Menlo Park, CA’s Broadband Software.

For Broadband, the shift has come not in the types of services it offers, but the urgency with which they are purchased. During the last year and a half, larger companies have become less concerned about dot-coms stealing business out from under them, Rossi notes.

If firms such as Broadband haven’t seen a dropoff in sales, it may be due to a shakeout in the industry. “Last year we competed with 40 players. I would guess in the CRM space there are now 12,” he says.

Some companies are focusing on their service applications, which have a faster rate of return. At Pittsburgh-based Advanced Software Applications, president Bill Gossman has seen a shift within the last two quarters among companies wanting to cut out costly learning curves and prove the return on investment in analysis without committing significant dollars to new systems.

“They’re looking at us to do one or two projects for them, and then do a gradual transition to purchasing the products,” Gossman says.

He adds that this method allows customers to get the analytic functions they want implemented quickly.

Like Siebel, Raleigh, NC-based NCR has seen a shift toward campaign-based investments and away from infrastructure. John Dinning, vice president for CRM marketing at the firm’s Teradata division, estimates that in mid-2000 between a quarter and a third of his division’s sales consisted of products that provide analytic functions, with the rest being comprised of data warehouses. More recently, that’s shifted to a 50-50 split.

“[Customers now] have data warehouses in place, and are migrating them to the next level of capability,” according to Dinning.

Dinning does not see a tailing off in overall sales: For him, the biggest challenge is not whether the customers are willing to spend, it’s how fast NCR or any of the other CRM software vendors can implement the systems that will actually offer a return on the investment. “They need to show that in times of cutbacks, while it might seem like new spending, it’s the best way of spending the dollars they have,” he says.

And NCR is also exploring ways of getting solutions swiftly into customers’ hands. In the last quarter of 2000, the firm began work on several out-of-the-box product suites.

Companies that keep a global perspective will probably not panic. Mark Funston, chief financial officer of Group 1 Software in Lanham, MD, notes that the slowdown in one industry his company serves — telecom — has been limited to America. The Latin American and European telecom markets are surging, he says, and Group 1’s revenue projections anticipate that any slowdown in this industry within North America will be made up for overseas.