Has CRM Software Become a Commodity?
The CRM software sector had been and continues to be one of the fastest growing segments of the computer software industry. Analysts’ predictions of explosive growth served as the catalyst for those companies looking to grab a slice of this booming market. It wasn’t long before a myriad of CRM offerings became available.
Some were low cost programs for contact and account management while others offered more robust offerings for marketing, sales and customer service. Today there are literally several hundred companies competing in this space, but can they all survive? It’s unlikely in light of the fact that the CRM sector is perceived by many to be a commodity.
One of the first indications that a sector has become a commodity is price erosion. Price erosion occurs when the market becomes flooded with options and the buying community perceives that the available offerings are all pretty much the same. These consumers no longer pay close attention to features and functions, but instead view price as the main differentiator. This is not new to the technology sector, but it is uncomfortable for CRM manufacturers who are struggling to differentiate themselves in this highly competitive market.
For years, technology and software manufacturers have fought the commoditization of products by trying to outmatch their competition. They would scramble to add a feature or two that the other guy doesn’t have and were convinced that this would not only help to differentiate their offering, but give them the right to charge a high price. Salesforce.com worked this angle rather well for a while, that is until the other guys caught up. Like most technology companies, I think Salesforce.com learned that trying to “out-feature” the competition is not a solid long-term business strategy.
So what does the future hold for CRM manufacturers? I am not sure they know but what is apparent is that Salesforce.com, Microsoft, SugarCRM and Commence CRM, all considered mainstream CRM solutions, have on several occasions been forced to re-package and lower their price. This is a clear indication that the commoditization of the CRM sector has already begun.
I do not think these companies are blind to this. Salesforce.com for example has been acquiring other products and services perhaps to offset the reduced growth and lower price points associated with CRM while Commence has been adding an array of professional services and sales training programs around their offering.
The commoditization of the CRM industry however is not a bad thing. It’s good for the consumer. Competition traditionally breeds better products and lower price points. While competing in a commodity market can be frustrating to the CRM manufacturers, the companies mentioned above have already navigated through choppy waters and will continue to offer quality products and services well into the future.