IBM Corp. and Microsoft Corp. are pursuing vastly different strategies in their attempt to strike gold in the lucrative CRM mid-market.
By analyst estimates, the small-to-medium business (SMB) space is set to spike. Framingham, Mass.-based International Data Corp. recently said it expects demand for mid-market CRM to grow by almost 19% per year and will reach $45.6 billion by 2006.
With the enterprise CRM echelon already owned by market leader Siebel Systems Inc. and enterprise application behemoths SAP, PeopleSoft Inc. and Oracle Corp., a great deal of attention has shifted to the low end, where Microsoft and IBM are turning up the heat.
IBM made the latest move last week, extending its network of software developer partners in the CRM mid-market by inking a strategic alliance with Clear Technologies Inc. of Coppell, Texas. Under the deal, the two companies will jointly sell North American mid-market CRM to customers in the wholesale distribution, industrial and services industries. IBM has similar relationships in place to address other SMB verticals with New York-based Relavis Corp. and Danderyd, Sweden-based Intentia International.
According to IBM officials, Big Blue has always recognized an opportunity in the CRM mid-market, even though it stopped making its own applications to address the space in 1999. Cynthia Erdman, vice president of strategy and business development for IBM developer relations, said her company intends to identify partners, such as Clear, that it sees as offering leading technology built on IBM architecture.
"Since SMB customers in these verticals are already familiar with Clear Technologies, combined with the additional backing of IBM architecture and our Global Services unit, we know it makes an attractive package overall," she said.
IBM's 1,000 sales and marketing "feet on the street" can't hurt Clear, which is recruiting new customers in the 25-user to 400-user range.
Yet if IBM's strategy is to help existing vendors expand while growing its own infrastructure presence, Microsoft's plans are already threatening some of the current crop of mid-market CRM providers.
Microsoft's own software
Microsoft intends to ship its own CRM software suite by the end of the year. The product line will go head-to-head with low-end tools like Best Software's SalesLogix and products offered by FrontRange Solutions Inc. Since those software makers have made their applications look like and interact with Microsoft's Office applications, including the Outlook e-mail and calendar program, some industry watchers believe the software giant will be able to steal some market share. Previews of the Microsoft CRM application have shown that it also looks and feels very much like an extension of Outlook.
On the architecture front, Microsoft has been pushing hard to drive adoption of its new .NET architecture in the CRM market. Companies such as Colorado Spring, Colo.-based FrontRange are already building products around the platform.
Microsoft is touting its own CRM offering as its first release built purely on .NET. But according to experts, there are a number of existing developers who say Microsoft may be late to its own party.
"Some of these guys are saying to Microsoft, 'We're more .NET-centric than you are,'" said Joe Outlaw, research director for mid-market CRM at Stamford, Conn.-based research firm Gartner Inc.
In fact, the mid-market has a slew of established competitors building products on Microsoft platforms, such as Onyx Software Corp. and Pivotal Corp. Upstream, Microsoft has partnered with more established players such as E.piphany Inc. of San Mateo, Calif., which recently announced an agreement to integrate Microsoft's MapPoint.NET geographic mapping system within its own CRM suite.
That may put some vendors in an awkward position; they'll build for Microsoft's platforms while competing directly with Microsoft's software.
The infrastructure battle
Analysts believe that it will be a hard-fought battle for CRM mind share between IBM and Microsoft, despite the fact that they will not always compete directly. The real action will be on the infrastructure front, according to Gartner's Outlaw.
"Microsoft has an advantage, as nearly everyone focused on the mid-market down to the small companies is supporting its technologies," Outlaw said. "The question is: can IBM come in and start at the high-end of the mid-market and drive down to push Microsoft to the side? That is uncertain."
Outlaw contends that while Onyx and Pivotal are still the mid-market CRM leaders, their financial instability may begin to turn off some potential customers and open the door for players such as Microsoft and vertical specialists like Clear Technologies. Another feather in the cap of the IBM-Clear camp, he said, will be IBM's sales bonus program, which will reward reps with commissions based not only on the middleware and services IBM provides, but also on the dollar amount of their partners' software sales.
"It should be an interesting battle to watch as IBM and Microsoft move their strategies forward," Outlaw said. "IBM might be thinking of going after the smaller business, but that may be an even tougher battle, as that sector is so entrenched with Microsoft, while the pure mid-market is a little more wide open."
It may also take Microsoft several product iterations to get its CRM technology, and its strategic message, straight. In the meantime, Outlaw said he expects IBM to continue to recruit established SMB players and drive its architecture through connections to its own WebSphere, Linux-oriented and database product lines.
"We think the SMB market can take off any minute," said Outlaw. "IBM and Microsoft could play a big hand in making that happen."
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