An overcrowded market, current economics, flat spending, and a yearning for suites instead of point solutions will contribute to consolidation in the CRM software industry, analyst reports detailed this week said.
Reports from RCW Mirus, which is a Boston investment bank, and Meridien Research Inc., of Newton, Mass., both predict consolidation, with Meridien focusing its investigation on CRM spending at financial institutions.
Mirus' software group in its report predicted "that by the end of 2002 the group of 24 public CRM companies we follow will number only 5-7 meaningful independent vendors."
"I think what's really going to be the trend here is companies like PeopleSoft Inc. or Siebel Systems Inc. making a decent-sized [acquisition] in the US$100 million-$300 million range ... which would make all the other players in the space need to respond," said Mike Murphy, principal analyst in charge of software banking at Mirus. He acknowledged he did not have any specific information about any acquisition plans of CRM companies.
Enterprises are trying to deal with fewer and more stable vendors, Murphy said. "If you're a company that has only one or two products to offer, it's becoming more and more difficult to sell to these large enterprise CFOs reviewing contracts," Murphy said.
Customers are looking for suites instead of point solutions, according to Mirus. A difficult economy and resulting balance sheet weaknesses also will stress CRM sales, the company said. Also contributing to a consolidation will be the high cost of capital for CRM companies seeking a cash infusion, Mirus said.
Meridien Research, meanwhile, is predicting further market consolidation as financial institutions' spending increases flatten through 2003.
CRM spending at retail-based financial institutions, which deal in business-to-consumer transactions, will stay essentially the same in 2002 as the $6.7 billion spent in 2001, with no significant expansion until 2004, according to Meridien. CRM spending at corporate-based business-to-business financial institutions will remain at $3 billion this year, as institutions examine their return on investment on less-than-successful CRM investments, Meridien said.
Top management at financial institutions will seize upon market confusion to strengthen their arsenal of CRM capabilities, often at bargain terms, Meridien said.