No. of Recommendations: 14
Mike asked:

In CRM software, the product being marketed to the small- and mid-tier customer is so different from the product being marketed to the top-tier companies that they are really two different product categories even though they are both CRM software.

Additionally, the nature of the product and the needs of the customers are so different that they are marketed differently. The top-tier companies require a direct sales approach and/or use of a systems integrator. The small- and mid-tier companies require only a telemarketing approach and an Internet site to make a purchase decision.

The combination of product differences and customer needs are so different that in the case of CRM, there were two tornados -- one for the top-tier customers and one for the small- and mid-tier customers.


Mike,

It's well outside my field of expertise to know the differences in the software products competing in a product category, particularly the CRM vendors. I think part of the reason small and medium sized businesses make the evaluation process and purchase decisions in the manner you describe is two-fold. The product they could be buying is a comparably scaled-down product and the vendor is a scaled-down company relative to its larger counterpart, such that the cost and operating structure of this vendor can make money doing business in this demographic. They don't have multiple offices around the country and the world, field sales agents, hundreds of R&D experts.....etc. Hence the conduit for the product is over the net and direct mail, both sales and delivery.

Does this mean, though, that this type of company can not grow? Absolutely not. These are the one's that the Siebel's and i2's of the world need to watch out for. The mass market is larger than the top-tier market and it has more churn in it than the top-tier. These companies can grow up into the top-tier if they have success in making that evolution and can scale their offering in their products to the top-tier and maintain the proper product design for the small and mid-tier customer. Manugistics is a wonderful example of this.
The reverse is something that is quite difficult for the top-tier vendor to do, though.

The price of software and implementation complexity makes the offering too over-whelming for for the small and mid-tier customer. And, from the software vendor side of the equation the top-tier vendor doesn't see the possibility for making a sale to the small and mid-tier customer for two reasons. They know their product is too "pricey" for them. They have nothing else to offer. This leads these type of comapnies to hit a wall after about 5-8 years. They either continue to try to make their living in that top-teir market which is already starting to slow on the growth curve for them. Then they have to decide if we are going to continue to grow we need to be able to sell into the mass market. But, their product offering is such that they cn not with current cost structure of their company. They have to reengineer their product into smaller pieces ( into a modular components of functionality) for the smaller sale. Most importantly, if they are going to sell into the mass market and the sale is smaller in revenue this will not support the size (cost structure) of the company so they have to reengineer that as well. i2 is wonderful example of this. But I think Manugistiics is too far ahead of them already. As Andy Grove said, "When a technology opportunity comes your way, grab it and get out front of your competitor." Manugistics took a chance on a new technology offering, a platform software layer that they could modularize their product on. This gives them the ability to sell smaller offerings into the smaller markets and add on components that are written in the same language as the platform (and their components) to give scale and go into the top-teir markets and compete their as well. These other client/server gorillas need to be watchful of this same thing in their respective eBS categories, in my unprofessional humble opinion.

Let me say a little more about i2. I think i2 is wonderfully successful growth story with great products that's made them a dominating force in the top-tier. I have no axe to grind. I have no investments in either i2 or Manugistics.

I assume that because an appserver is an enabling product, the situation exemplified by CRM software wouldn't occur in appservers; there would probably be only one product category that would meet the needs of all customers. Am I right about that?

Not necessarily. This is the threat that a company like Microsoft can wield. This is also what surprised me a little when I read recently something about Microsoft not allowing JAVA to run with .Net or XP or something like that. In effect leaving 50% of the market free to the JAVA people. Microsoft could certainly come up with some sort of platform (isn't that what they already are?) that could run on a stand-alone CPU or cluster several together, slap in two Ethernet Cards in the host CPU one to serve the cluster and one two serve your small business intranet and the Web. You could run eBS applications on that for a small business. Pretty cheap if you ask me. Anyway, their is a window of danger for BEA and that is the .Net threat for the mass market and the time it takes BEA to roll out the new small-medium market product in the second half of 2002. I'm getting outside my area of expertise, though. Who says someone can't develop something skybluewater describes in the next year or so. It's great concept. http://boards.fool.com/Message.asp?mid=15590535

Let me touch on another reason why small and mid-tier companies make the choices they make. To be fair, though, I'm speaking only from the relationship of a company like mine in the industry I'm in, but somehow, I'll bet it applies to other industries structured like mine.
Right up to today, we have to be very careful of the financial commitments and technology adoptions in IT. This is because of the pecking order of our company when you look at the Extended Enterprise Value Chain we participate in. I alluded to that a little in a recent post in a response to TinkerShaw. Whereby, I said, we are being driven to move more business functionality to the Web by our customers, the Tier 1 and Teir 2 suppliers in the Auto Biz as they are being driven by the OEMs, the Big 3.

If our company goes out and spends in the low to mid 6 figures and makes a commitment to a certain technology that we want to standardize our business on and our customers and thier customers (up at the top of the chain) do something different that is not compliant with what we've just commited to or does not run as well as it should, we've just made what could be a fatal mistake. We have to listen to our customers for what they want us to be technologically compliant with, with what they choose. It's the same thing with EDI. We have to maintain that capability because they require it. So when you have limited resources like we do you have to move very cautiously.

This does not bode poorly for BEA for two reasons. BEA has gone after the the top-tier with some degree of success, so far. I don't know of that's the reason why, (because often times the OEM is driving the technology adoption, the glue, that binds together the Extended Enterprise Value Chain) but it will probably contribute to the success of JAVA and J2EE into the small and mid-tier value chains.

The fact that IBM being J2EE adopters with WebSphere does as much good for BEA as anything, believe it or not. Because of IBMs installed base of databases clients and EDI and J2EE being adopted by IBM and the interoperability with IBM product lines it makes BEA a credible choice to a larger universe of customers. It is not too unlike IBM going into the PC business in the early 80's. This signaled to the world that the PC was an industry and will have far-reaching positive impacts on productivity. The PC was very much viewed as a novelty for the technology hobbyists before IBM took it seriously. If IBM were pushing some other language for a platform BEA would not even be in the discussion at our company, even though BEA could be IBM compliant with their J2EE platform and WLS the only reason companies my size have even heard of BEA is because of the IBM/BEA race.

Anyway, I've gone too long again.

Thanks,

Tom
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