CRM market appears headed for shakeout

Last week's merger of ailing Kana Communications Inc. with Broadbase Software Inc. may be just the latest sign of an accelerating shakeout in the customer relationship management (CRM) market, according to analysts.

The softening economy and the proliferation of smaller players has made the field ripe for consolidation or downsizing, say analysts. As a result, users of software from Redwood City, Calif.-base Kana and Menlo Park, Calif.-based Broadbase, as well as the dozen other CRM companies that have recently merged, may be left to face discontinued product lines and confusion.

For those who are concerned, there are steps that can be taken, said Steve Bonadio, an analyst at Meta Group Inc. in Stamford, Conn. A company should demand a contingency contract from a CRM vendor stipulating that in the case of a merger or bankruptcy, the user can get access to the application source code for future modification, he said.

Not all users are worried, however. The Kana/Broadbase merger just means business as usual, said Stacy Maclean, a spokeswoman for San Francisco-based clothing retailer The Gap Inc.

"We have no concerns and have plans to continue our relationship with Kana," she said.

Some users might even benefit as a result of their vendors expanding and integrating their product lines.

"By combining the data and capabilities into one enterprisewide system, Chordiant is providing us with a more effective tool to manage our resources [and] retain and better serve our customers," said Steve North, head of strategy and architecture at Edinburgh-based The Royal Bank of Scotland Group PLC, a user of software from Chordiant Software Inc. Cupertino, Calif.-based Chordiant recently acquired Boston-based PrimeResponse Inc.

Kana claims that the merger with Broadbase will result in a more rounded product line, with Kana's communications management functions and Broadbase's analytical tools.

Despite the lofty rhetoric, the deal seems like a defensive move, said analysts. Kana last month laid off 20% of its workforce, and when the merger was announced, both Kana's and Broadbase's stocks were trading for approximately $1.

"This merger was a total balance sheet and customer acquisition play that does little to strengthen Broadbase's previously focused strategy," said Bill Chambers, principal analyst at Doculabs Inc., a research firm in Chicago.

Despite the turbulent market, CRM remains a high priority for many firms, according to recent findings by Intellor Group Inc., an analysis firm in Gaithersburg, Md. A survey of 137 companies indicated that 88% are using or thinking of using CRM systems.

But consolidation appears inevitable for most small and midsize CRM players, said Joanie Rufo, a research director at AMR Research Inc. in Boston. "Of the nearly 500 CRM vendors in the market today, by the middle of this decade, only 15% will still be recognized as viable CRM providers," she said.

This story, "CRM market appears headed for shakeout" was originally published by Computerworld.

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