Trying to Lure Sales

 
 
By Dennis Callaghan  |  Posted 2002-07-15 Print this article Print
 
 
 
 
 
 
 

CRM tools vendors hurt by tighter IT budgets.

Another round of earnings warnings earlier this month sent CRM software makers reeling again, with several developers conceding their inability to close deals at the end of the second quarter. As a result of lower revenue, customer relationship management software developers might be hard pressed to continue their pace of innovation.

E.piphany Inc., Kana Inc., Aspect Communications Corp. and Primus Knowledge Solutions Inc. were bitten by the earnings warning bug. Separately, a Wall Street analyst downgraded his second-quarter earnings expectations for industry leader Siebel Systems Inc.

The chief reason given for the slowdown is that in the souring economy, IT managers are finding it harder to get approval for new CRM investments.

Joe Galvin, an analyst with Gartner Inc.s CRM practice in Stamford, Conn., said that with companies watching their spending more carefully than ever in the slowing economy, finance managers tend to be more involved in IT spending decisions than in previous years. These finance managers need to see a tangible ROI (return on investment) in a specific time period before theyll sign off on buying new software—a feat that is easier said than done with CRM, Galvin said. "Because of the nature of trying to automate your customer relationships, the benefits of CRM are less tangible," he said. "It can be more difficult to get that funding."

As a result, sales have suffered. San Francisco-based E.piphany predicted second-quarter revenue of $19 million, down from $32.3 million in the same period a year ago, missing analysts consensus estimate by more than $4 million. Separately, Kana, of Menlo Park, Calif., warned that it would fall into the red in the second quarter, with an expected net loss ranging from $24 million to $30 million.

Call center software vendor Aspect, of San Jose, Calif., warned of an operating loss of between $8 million and $9 million on $95 million to $97 million in revenue. The company plans to cut expenses by $8 million to $12 million per quarter.

Seattle-based Primus, which provides contact center and knowledge management software, also endured a tough quarter and said it expects to record $4.2 million in revenue, down from $6.52 million in the same period last year. Its loss will range from 16 cents to 19 cents per share. President and CEO Mike Brochu said that sales activity was up but that the company hit delays in closing deals.

Meanwhile, Siebel, of San Mateo, Calif., did not warn of falling revenue or earnings but had its estimates cut by analyst Patrick Mason, of San Francisco-based Pacific Growth Equities Inc., for the second time in a month, citing a weakening European market. Europe is said to count for one-third of Siebels revenue.

Not all is lost in the CRM space. Last week, hosted CRM application service provider Salesforce.com Inc. announced that its revenue is growing by 30 percent every quarter, though revenue was still only $10.5 million in the quarter ended May 31.

Putnam Lovell NBF chose Salesforce.com over several licensed software vendors it considered, including Siebel, Onyx Software Corp. and Pivotal Corp. nearly three years ago. Putnam Lovell Chief Technology Officer Rodric OConnor said hes not surprised the licensed software vendors are having trouble closing deals.

"Theres not just the issue of how much time before you see ROI, but a question of will there ever be ROI when you have such a large upfront capital cost," said OConnor, in San Francisco. "Everythings being scrutinized to a much greater degree right now."

OConnor said no CRM software or service will give customers everything they need. The advantage of Salesforce.coms model is that users pay for only what they need, with no upfront costs for hardware, software or consulting services, he said.

"What persuaded us not to go the traditional software route was that we were nervous about ROI when the capital outlays were from a half-million to a million dollars upfront," OConnor said. "We absolutely, unequivocally made the correct decision."

Some analytical CRM software makers arent waiting for a turnaround.

Business intelligence vendor MicroStrategy Inc., of Fairfax, Va., ended a licensing agreement with Exchange Applications Inc., which had provided the marketing automation software in MicroStrategys eCRM 7 application, which became available in August 2000. In ending the relationship, MicroStrategy announced earlier this month it was quitting CRM development and focusing on its business intelligence platform.

Randy Mattran, IS leader for business intelligence at Best Buy Co. Inc., a MicroStrategy customer, said the packaged applications strategy MicroStrategy was pursuing was "questionable" since data models for business intelligence and data warehousing applications need to be mapped to a companys specific business processes.

"You cant just dive into large organizations with a new data model and expect people to adopt it," said Mattran, in Minneapolis. "The basic business model around packaged applications can be flawed. I think its smart business sense for MicroStrategy to stay as a platform vendor."

 
 
 
 
 
 
 
 
 
 
 

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