CRM Pins Big Hopes on Small Biz
By Lou Hirsh
CRMDaily.com
August 05, 2002
http://www.crmdaily.com/perl/story/18873.html
After being largely ignored by CRM vendors, small and mid-size businesses are starting to get the attention they deserve. As the economy improves, they will look to bolster their customer experiences and track relationships with suppliers and marketing partners.
Small and mid-size businesses have long suffered from middle-child syndrome
when it comes to winning the attentions of CRM providers. But a tight economy
and IT spending lockdowns at large corporations now have vendors eyeing those
firms -- especially the mid-size tier -- as their next great hope for new revenues.
"We think the growth prospects for mid-sized businesses, and the under-penetration
of technology on the CRM side, make that a very attractive market," Gartner
research director Joe Outlaw told CRMDaily.com.
Experts noted that this will be especially true as the economy improves and smaller companies look to bolster their customer experiences and track relationships with suppliers and marketing partners.
Fewer Big Scores
According to Yankee Group senior analyst Laura DiDio, CRM software vendors realize
they can no longer count on scoring big projects at Fortune 1000 companies.
They also know that enterprise-wide CRM has always been a tough sell for smaller
markets. However, the sheer numbers of small and mid-size businesses make them
attractive sources for new income.
"This is a huge constituency," DiDio told CRMDaily. "It's a huge untapped market."
With spending remaining tight at the biggest corporations, CRM vendors are looking to cast their net wide and focus on previously overlooked smaller businesses, whose needs are expected to grow as the economy recovers. But tapping those markets will be far from a slam-dunk.
Not only do small companies lack deep pockets, DiDio said, but they also may feel "disenfranchised" by the CRM industry's previous focus on the needs of larger corporations.
Good Small Niches
Nevertheless, DiDio said, there are some potentially fruitful areas to serve, including the small office and home office segments, as well as some "mom and pop" companies seeking to differentiate themselves in industries with a large number of players.
To earn the business of smaller firms, vendors will have to learn the distinct needs of a large number of diverse segments, rather than market one-size-fits-all packages. The rewards could prove significant, however, especially if CRM providers can get in on the ground floor and help take small firms to the next level.
"Who knows -- some of these companies could become the next Ben & Jerry's," DiDio said.
Mid-Tier Most Promising
Currently, the mid-size tier -- companies employing 100 to 1,000 people, with annual revenues of between $50 million and $500 million -- is potentially the most lucrative.
Gartner's Outlaw said just 20 percent of mid-size firms currently have enterprise-wide CRM programs installed. Gartner had projected that figure would improve in 2002, but that has not come to pass in the current economy.
However, Outlaw noted, it is reasonable to project that when the economy improves, CRM penetration for mid-size businesses eventually could reach at least 65 percent.
He said this prospect already has spurred a number of firms to position themselves better in the segment, including Microsoft, Siebel, SAP and J.D. Edwards. He said he expects Oracle and PeopleSoft also will bolster their efforts.
In addition, several smaller firms, such as Onyx and Pivotal, already have a strong presence in the mid-size market.
"Those incumbent companies are not going to go away," Outlaw said. "It could get quite competitive."
Tough Sells Ahead
In terms of their numbers, small businesses -- those employing fewer than 100 people with revenues of less than $50 million -- make up a larger market than mid-size or large enterprises.
But Outlaw said CRM penetration in the small-business segment is much lower, with just 2 percent currently using enterprise-wide software. Still, an improved economy could increase use rates in that segment to 20 percent, he said.
While small firms increasingly use standalone technologies for various customer functions, it remains tough to convince that segment of the need for all-encompassing CRM products, he added.
'Show Me' Mentality
Outlaw said CRM penetration currently stands at about 35 percent for large enterprises -- those employing more than 1,000 people and that have revenues exceeding $500 million. But the present climate has made it tough to squeeze new growth from that segment.
"The big projects are fewer and far between," Outlaw said, noting that another trend also does not bode well: CRM buying decisions at big firms have moved from sales-oriented managers to chief financial officers, who have much more of a "show me the numbers" attitude.
Despite the overall attractiveness of small and mid-size markets, analysts said they will remain a challenge for vendors, in part because of the negative experiences that some larger companies have had with CRM technology.
"There has been publicity
out there about CRM not always being a home run," Outlaw said, and smaller
firms are less likely to take the same risks that large companies did unless
benefits are clearly evident from the start.