CRM Analytics Offers Challenges and Opportunities

Tuesday Aug 5th 2003 by Ian Jacobs
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Where should an IT executive turn for reliable, integrated analytics? Four vendor segments are competing to dominate the CRM analytics market, but they all face some clear obstacles and opportunities, according to a report published by analysis firm the451

For many CIOs, the benefits of CRM analytics are still unproven, leaving many IT executives to wonder, do fancy models really produce ROI? Often, where analytics have been deployed, a significant number of statisticians are still being employed, going completely against the widely propagated notion that analytics should be usable by any marketer. Yet, the future for analytics is bright, as the451 found in a recent 451 Special Report, CRM Analytics: Have the BI vendors missed the boat?

Defining the Challenge and the Opportunity
Collecting information about customers and using that data to drive marketing campaigns is an idea that clearly predates the dawn of the computer age; however, as the role of technology in marketing has increased, building comprehensive, robust, real-time analysis into marketing applications and CRM suites has remained a significant challenge.

While marketing was one of the early uses for computer-based analytics, it was often used to see how well campaigns performed - the so-called "rearview mirror" approach to analysis. Companies have been demanding that analytics look ahead and help them identify future opportunities. This is currently one of the largest technological challenges facing analytics vendors.

The majority of customers make do with the analytics provided by their marketing automation application vendor - be that E.piphany, DoubleClick (which is based on its acquisition of Protagona) or larger players such as Siebel, SAP or PeopleSoft. These vendors offer packaged reports, canned analytics (determining customer lifetime value, for example) and an increasing focus on enhanced customer segmentation, but they lack insightful, real-time analysis that rises to the order of strategic tool for managing the relationship between marketing programs and sales returns.

The analytics included in these marketing products are always improving, but in the meantime customers have turned to external vendors to help them get better information on their marketing efforts. These pure-play analytics companies can offer much-enhanced analytic capabilities, and they all claim that their software can be used by any marketer. The prospective customer, however, has to weigh the risk of going to a smaller vendor, with the increased cost of integration.

CRM analytics have significant enterprise value and can improve specific customer-focused processes. Those processes could be customer segmentation, profitability analysis, personalization, "what-if" scenarios or predictive modeling. This is why the spotlight has begun to shine on marketing analytics. For heads of IT organizations, applying appropriate analytics to existing CRM software suites can show rapid ROI - in some cases, within four months or less — which is a bottom-line imperative that increasingly is not optional. Perhaps more importantly, though, some CIOs are finding that in the future CRM analytics may not be optional for larger enterprises, either. They may be a necessity due to recent privacy and accountability legislation, such as the Sarbanes-Oxley Act, which mandates higher-order scrutiny of spending, particularly marketing and sales activities that might be considered "off-books" transactions.

Emerging IT Market
The451 believes a strong market opportunity is emerging for CRM analytics software — a market that will see rapid technology development, acquisition and consolidation over the next 18-24 months.

There is significant, unmet enterprise demand for marketing analytics software. Enterprises need software that is robust but user-friendly, that doesn't require a PhD in statistics to operate and that can derive both ROI and higher-level business value from existing investments in CRM software suites. CRM analytics software uniquely fits the bill.

Page 2: Converging Vendor Approaches

Converging Vendor Approaches
Four vendor segments — business intelligence (BI) vendors, application suite vendors, marketing automation vendors and pure-play analytics companies — are competing to own this emerging market; however, none of the more than 30 companies reviewed by the451 are quite there yet.

The451 found that the first three categories of software-vendor companies — BI vendors, application suite vendors and marketing automation vendors — are both the primary offenders of not meeting customers' needs and at the same time the companies most able to seize this opportunity by delivering to customers.

  • Vendors of business intelligence software (such as Brio, Cognos, MicroStrategy and SAS Institute) were in a great position to capture the CRM analytics market opportunity early on; however, most have ignored real applications for analytics for too long by positioning their software as an open tool that is neither easy to use nor easily adapted to specific CRM analysis needs. Customers have been expected to develop analysis applications on their own or purchase additional analytical packages, but have not received strong support from the BI software vendors themselves.

  • "[The BI vendors] seem to have thrown away the opportunity in CRM analytics," the451 reports. "The BI vendors have tended to pay only lip service to analytics for so long. Most only support CRM analytics at a high level — typically customers must create finer-grain models and metrics using standardized templates for marketing analytics. Key lessons to be learned by the BI vendors are that they must focus on developing CRM analytics capabilities, must develop applications and not tools, must provide much greater ease of use and must look at acquiring leading sector pure plays."

  • The451 believes that application suite vendors (such as Oracle, PeopleSoft, SAP and Siebel) have the strongest opportunity to capitalize on this emerging IT market opportunity — if these firms pursue judicious acquisitions with a real focus on analytics. They will also need strong customer education and a smart roadmap to ensure that analytics complement existing data and application offerings.

  • Marketing automation vendors (such as Eloqua, Kana, Teradata and Unica) have much to fear from an increasing interest in analytics from the application suite vendors. If the CRM suite vendors can use analytics as a strong point of differentiation, customers might be tempted to shun pure-play marketing automation packages. Because analytics and marketing are inextricably intertwined, marketing automation players must seize the opportunity and use analytics as their own differentiator. They must also work hard on reducing integration costs and improving predictive modeling.

The fourth category - the CRM analytics software pure-play vendors (lesser-known companies such as Alterian, KXEN, MarketSoft and thinkAnalytics) - will be the prime acquisition targets for the software-vendor companies listed above and are a key group within this segment. Having the best algorithms will not be enough to attract customers, and so the451 believes few of the pure plays profiled in the report will remain independent over the next 12 months.

In addition to the software vendor opportunity, the451 believes outsourced, hosted CRM analytics services will grow at a strong pace for global IT services firms such as Accenture and IBM - fitting a unique pricing and service support need from customers.

IT End-user Implications
Emergence of the CRM analytics market and subsequent repositioning and merger/acquisition activity can mean both opportunities and challenges for CIOs attempting to implement analytics packages from both smaller and larger IT vendors. Some key recommendations to consider:

  • IT end users have been cautious about the true functionality and benefits of analytics. They have been understandably skeptical, given previous hyping. They should look seriously at the benefits of new analytics packages. To most end users, "analytics" means the standard applications that are part of packaged software, but these may not even be used. End users should ensure they are getting the best from their existing analytics, and push current providers to give them the best analytics possible.

  • Many of the pure plays have first-generation or unproven technologies. End users must demand reference sites and assess the capabilities for integration with their existing software, and they should also consider whether to link licensing fees to actual business results.

  • Hosted analytic services have become very attractive options from both a pricing and service support perspective. End users should watch carefully whether global IT services firms begin to seriously consider hosting and outsourcing of analytics; if the services firms do make a solid move into the space, customers will need to look at lifetime costs and ROI versus the costs of a direct sale.

As mentioned earlier, it is important to note that the passage of recent privacy and accountability legislation in the United States means that CRM analytics may not be optional for larger enterprises in the future. In the healthcare field, HIPAA will have a similar impact. CRM analytics are the tools that enterprises can use to effectively manage compliance with government rules, while also driving both revenue and profitability growth.

Finally, the U.S. national do-not-call (DNC) registry, while important to marketers as a practical regulatory enforcement issue, also marks the latest salvo against traditional direct marketing. As consumer savvy rises, direct mail response rates plummet. Who doesn't throw most unsolicited mail straight into the trash? Spam filters physically block an important online channel, and consumers' delete buttons finish the job. Now, with the DNC registry, telemarketing has come under fire, and marketers will be forced to rethink their entire strategy.

Without outbound marketing, marketers will increasingly be looking to maximize the possibilities of inbound contacts. When a customer calls in for service or support, marketers see an opportunity for cross-selling, upselling or cementing loyalty. To do that efficiently and effectively - without annoying the customer - marketers will be turning to analytics. It is the analytic applications that identify which offer is most appropriate for which customer, or which channel is the best way to reach a specific class of customers. It is even analytics that will identify which customers are not worth the effort of marketing.


Ian Jacobs is an analyst, enterprise application aoftware at the451, an analysis firm covering the business of emerging information technologies for a senior executive audience. The firm delivers research-based insight into the dynamics and impact of newly commercialized technologies in all major segments of the enterprise computing marketplace. CRM Analytics: Have the BI vendors missed the boat? — a 451 Special Report — is 158 pages and contains analysis of the competitive opportunities and threats surrounding this emerging IT market segment.
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