SAP Retains Market-Share Lead in CRM

The market for enterprise CRM software remained strong in 2007, according to recent reports from Gartner. And “strong” is really strong in this case: The firm pegged CRM revenue growth in 2007 at a robust 23.1 percent, rising to a total of $8.1 billion.

Walldorf, Germany–based SAP led the field in terms of market share again this year, by a comfortable margin. The company held a 25.4 percent share of worldwide CRM revenues in 2007, a slight decline from 2006’s 25.6 percent but still well ahead of runner-up Oracle (16.3 percent in 2007, up from 15.5 percent in 2006). And CRM was hardly a fluke for SAP: In a related Gartner report on enterprise resource planning software, SAP’s market share beat out its nearest rival—Oracle again—by nearly a two-to-one margin, 27.5 percent to 13.9 percent.

SAP is certainly a company to be reckoned with, and its market-leading positions are hardly a surprise, but casual discussion of enterprise CRM and ERP vendors rarely seems to begin with SAP—in fact, it’s often “the other company” mentioned after Oracle. Why?

“Bear in mind there’s a lot of currency effect in market share,” says Sharon Mertz, research director for CRM with Gartner. “SAP reports in euro; we calculate in euro and then convert to dollars. Given the weak dollar, it makes [SAP] look a little larger.” That’s not the complete answer, though; Mertz notes that Oracle, among other vendors, also benefits from this effect because much of its revenue comes from outside the United States.

SAP also performed well during a period in which Oracle was struggling with perhaps the highest-profile of its many acquisitions. “Oracle didn’t do well in 2006, since it closed the Siebel [Systems] acquisition in January of that year,” Mertz says. A product line often suffers when acquired by a rival, and the rivalry between Siebel and Oracle was famously bitter. SAP, by contrast, compounded its own internal growth in that period with the continued success of Business Objects, a 2007 acquisition that was immediately accretive to SAP’s bottom line. “SAP did well both organically and from the Business Objects line,” Mertz says. “Usually you slow down after an acquisition, but both were strong.”

While some continue to criticize the slow development of SAP Business ByDesign, the company’s midmarket software-as-a-service (SaaS) offering, Mertz says SAP is wise to take it slow and “focus on making sure it’s robust, with top quality and high profitability,” as releasing a bad product can be worse than making customers wait for a good one.

The overall CRM market also remained healthy. “Last year, nearly everyone did very well; it was a matter of a rising tide that floats all boats, and even weaker performers benefited,” Mertz says. “This year, budgets are being managed more closely, and customers can be more discriminating with their spending.” This translates into continued popularity for CRM, as companies struggle to hold onto the customers they have.

Overall, Gartner saw CRM revenue and market share continue to consolidate among the top vendors. (See chart, below.) In fact, several of the top-five CRM vendors outpaced the overall market in terms of revenue growth, with Oracle seeing an increase of 29.8 percent, Salesforce.com enjoying a rise of 49.8 percent, and Microsoft celebrating a whopping 88.6 percent year-over-year increase in revenue; SAP’s minuscule slip notwithstanding, Amdocs was the only one of the top-five firms to see a notable decline inmarket share, from 5.6 percent in 2006 to 5.2 percent last year.

Gartner has recommendations to go with its market assessments as well—specifically that CRM vendors should focus on offering products, services, and contractual arrangements that enable users to create the optimal experience for their customers. “Top priorities include online communities, workforce optimization, analytics, multichannel campaign management, and marketing resource management,” according to the report.

One important area of expansion is in the emerging field known as social CRM. “Looking forward, social networking, collaborative technologies, and social software are producing a major impact on the CRM market,” Mertz writes in her CRM report. “Enterprises face increasing challenges to determine how best to harness these trends and technologies for growth, both internally and in their customer service strategies.”

Meanwhile, on the eve of SAP’s quarterly earnings announcement, Oracle attempted to steal the spotlight by filing an amended complaint in a long-running suit against its rival—and this time, Oracle’s accusations were directed at top-level executives. Some observers paint Oracle’s amended lawsuit as a gambit for publicity—albeit a costly one—as opposed to having significant ramifications for the industry.

The suit involves TomorrowNow, a Texas-based third-party provider of technology support for users of Oracle’s PeopleSoft applications. The TomorrowNow case, according to Oracle’s filings, “is about a conspiracy...to engage in and cover-up corporate theft of Oracle intellectual property on the grandest scale.” According to the newly amended complaint, Oracle alleges that SAP executives, including Chief Executive Officer Henning Kagermann, were cognizant—prior to SAP’s 2005 acquisition of TomorrowNow—of the Texas firm’s illegal access to files and electronic documents belonging to Oracle. In the suit, Oracle states that SAP AG was warned in a pre-acquisition presentation given by TomorrowNow executives that apparently “made clear that TomorrowNow did not operate legally,” and, in fact, posed “likely legal action” from Oracle.

Oracle’s filing suggests at least two reasons for SAP to have gone ahead with the deal:

• SAP did not want to sacrifice maintenance revenue generated by TomorrowNow’s clients; and
• SAP “wrongly predicted” that Oracle would not take legal action under the assumption that Oracle would have to sue its own (PeopleSoft) customers as well.

At press time, SAP was scheduled to respond to Oracle’s accusations in court on September 11. In September 2007, however, SAP publicly declared that inappropriate downloads were exclusively restricted to TomorrowNow employees and that no information crossed over to SAP Americas or SAP AG. Regardless of the veracity of Oracle’s amended claims, SAP announced on July 21 its plans to shut down operations at TomorrowNow by October 31, 2008.

After admitting to Oracle’s initial allegations last year, SAP has repeatedly voiced its desire for the case to be resolved as soon as possible. Oracle, on the other hand, seems prepared for the long haul, declining to contest the case’s scheduled trial date of February 2010.

It’s unclear whether the case has had any impact on SAP’s reputation or its customer base. So far, though, the only ramification, says Ray Wang, principal analyst at Forrester Research, is “a definition of what can be done in third-party maintenance: What’s legal? What protects IT? How can people go down this path?” One thing’s for sure: Wang believes third-party maintenance should be available to customers, especially when the market holds only a handful of options, creating a noncompetitive environment where the cost of ownership becomes very high. Quoting another industry pundit, Wang says, “If I could only service my Porsche at a Porsche dealer, what would that be like?”

SAP announced revenue growth in software and software-related services of 16 percent (19 percent at constant-currency basis) for the second quarter, marking the 14th consecutive quarter of double-digit revenue growth.

SAP customers had other news to ponder: Not only did the company announce that it was shuttering TomorrowNow, but SAP Americas also informed all its customers that maintenance costs would increase from 17 percent of license fees to 22 percent, to cover additional services.

“The overwhelming consensus is that...it’s an insurance policy [customers] are not going to use,” Wang says. Most customers, he explains, talk to SAP for support-related issues maybe four to five times a year. He adds that, at an annual cost of, say, $500,000, it hardly seems worth it to be spending $100,000 a call.

Wang advises customers to examine the components of SAP that they’re using, and to put SAP customer support to the test, taking advantage of the features SAP currently offers, which are technically free until January. He says he’s skeptical, though, that SAP will be able to put its money where its mouth is. “They’re not ready to support the number of customers who are going to come after them,” he says. Customers, he adds, need to ask themselves, “Did you get the functionality requirements you asked for in the last four years? Have [the dollars] been put back into the product with the maintenance fees that you’ve purchased?”
Wang does credit Bob Stutz, senior vice president and general manager of CRM global strategy and product development at SAP, with having made significant progress in SAP CRM. “They’ve been very active in working with customers, getting requirements in there, and understanding that CRM customers are much more demanding,” he says.

Wang adds, however, that despite SAP’s sizeable market-share leadership in CRM—a measure that Wang says fails to reflect actual software deployment—the company needs to play catch-up to other CRM industry peers in terms of functionality and customer service. It’s rare, he notes, that an SAP customer purchases SAP CRM as a standalone application.

Every month, CRM magazine covers the customer relationship management industry and beyond. To subscribe, please visit http://www.destinationcrm.com/subscribe/.

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