Gartner Inc. has published its Magic Quadrant ratings for CRM software vendors in the North American midmarket, naming established industry players Onyx Software Corp., Pivotal Corp. and SalesLogix as leaders. Yet, in just several years' time, Gartner expects newcomer Microsoft Corp. to steal a sizable chunk of the sector.
Stamford, Conn.-based Gartner publishes an array of Magic Quadrant reports annually to give IT buyers a snapshot of how vendors are performing. Each report categorizes the providers as one of four types: leader, competitor, niche player or visionary. Gartner defines the North American midmarket vendor as one that caters to end-user companies with between 100 and 1,000 employees, has $50 to $500 million in revenue or which is a midsized division of a larger enterprise firm.
In the midmarket leader quadrant for 2003, Gartner placed Bellevue, Wash.-based Onyx ahead of all others, with Pivotal, of Vancouver, British Columbia, not far behind. Report author and Gartner CRM research director Wendy Close said this is largely because of the two firms' success offering price and simplicity to users at the high end of the midmarket.
"These vendors are providing good all-around functionality for 25% of what it would cost to deploy something like Siebel," Close said.
The SalesLogix division of Best Software Inc., based in Irvine, Calif., scored well among providers catering to the low end of the midmarket, she said.
Close gave high marks to Salesforce.com for its ability to sell into companies with limited budgets that need strong sales force automation. However, Close said, the greatest potential lies with Microsoft, which introduced its debut CRM offering at the beginning of this year. Close said that, in the next year, MS CRM should pose a threat to vendors that cater to shops with 15- to 100-seat implementations, like SalesLogix. By 2005, Close forecasts that Microsoft will be swimming upstream, competing with the likes of Onyx and Pivotal.
When faced with the question of which vendors he sees as long-term competitors, Onyx CEO Brent Frei agreed with Close.
"We're more concerned with people like Microsoft and Salesforce.com reaching up from the low end for a couple of reasons," Frei said. "We've never really seen the big guys come down and be effective; to do so means a total product rewrite, and they haven't committed to that."
Frei said he feels it will be years before Microsoft can offer the same level of functionality as Onyx CRM and that, in the meantime, the company's entry into the midmarket validates the space.
Two enterprise players that have varied interests in the midmarket occupy Gartner's challenger quadrant: Siebel Systems Inc., in San Mateo, Calif., and PeopleSoft Inc., based in Pleasanton, Calif. Close said Siebel's presence stemmed from "momentum" the firm established as it helped establish the CRM industry at large.
"Siebel does more business in revenue to users in the midmarket than a lot of the other vendors combined," Close said. "But Siebel's vision is not to target midsized businesses."
Close said that companies seeking deeper functionality have had success with Siebel but that the company's high applications and implementation costs keep it out of reach for many midmarket customers. While Siebel previously offered a midmarket CRM product, Close said it was basically a "slimmed-down" version of its enterprise software that was still too expensive for most users' budgets.
Close remains skeptical of the chances for PeopleSoft, which only recently introduced a new lineup of midmarket-specific software. While the company might attract some midmarket customers, most would come from its installed base of enterprise resource planning (ERP) software users, Close said.
"They may have success in the near term, but they have no references to confirm or deny whether they can deliver at low cost, and I think that will be the problem," she said.
Gartner placed a number of vendors in its niche player quadrant, but most of these companies are shifting their business models in response to competition from Microsoft and the enterprise players, according to Close. One example is Talisma Corp., in Kirkland, Wash., which is positioning itself more as a specialist in the customer service and online chat arena than in the pure CRM space, Close said.
Some insiders have called the midmarket CRM's "sweet spot" because so many midsized companies have yet to install CRM software or are using homegrown applications.
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