2007: What’s Ahead?

When making forecasts for a year ahead, I have always found the “greater fool” theory comforting. In short, it takes a fool to make a forecast, and a greater one to believe it.

On balance then, I think it wise to hide these predictions from children, the gullible, the insane, etc. Some people will look at this and see doom and gloom because there are some things to be concerned about, but the concerns are simply the environment we have to deal with. We can still find some ways to make lemonade out of our lemons, and that’s what I hope to do here.

First, the Economy

The economy is our environment, and it makes no sense talking about CRM until you get this baseline established.

In general, I think the U.S. economy is in for some rough sledding and I hope I am wrong. The housing bubble is showing signs of bursting and interest rates are stable. However, fuel prices are on the rise again after a pre-election soft landing and the dollar is pretty weak against the Euro. Consumer confidence has been in negative territory for a while.

All of these things are indicators that economists routinely scour to figure out the economy’s direction. As some wag once said though, they’ve predicted 12 out of the last 9 recessions, so take it all with a grain of salt.

Despite the weak dollar, our exports are expensive compared to Asia and we continue to lose high paying jobs. I heard an economist on public radio the other day say that although we are exporting jobs, we are creating jobs too. Well, all jobs are not created equally and some measure of job quality must be applied before we declare victory or even a truce on that front.

Speaking of fronts, we will be mired in a foreign war for 2007 and that continues to add to our economic woes. I am not here to make a political statement, but I simply must emphasize that CRM’s performance will be tethered to that of the economy at large.

One thing to keep in mind is that even if the U.S. economy hits a rough spot, the rest of the world will not necessarily feel the pain. The European economy looks stronger than it has in a long time, and if Asia cooled off a bit it would still be growing at a torrid rate.

To net it out, one strategy for U.S. CRM companies might be to look to export more, and given the on-demand nature of many software products today, that strategy has never been easier to implement.

A Bright Spot

If there is a bright spot in all this, it continues to be the on-demand market. For all of its life so far, the appeal of on-demand, at least in some measure, has been related to its significantly lower costs compared to traditional software. Given the economic scenario I am forecasting, this should be pretty good news for on-demand providers.

To sell their wares, on-demand providers will need to show powerful cost reduction potential and big, positive ROI. That will get some companies moving, but others who have more or less paid for their traditional infrastructures will be tempted to sit on the sidelines waiting for better conditions.

For CRM vendors, this means that existing customers might continue to pay their maintenance contracts unless they discover that maintenance, plus some amount of labor costs, plus a pending hardware upgrade equals a decision to go with an on-demand solution. Stranger things have happened.

Beyond conventional CRM, I think there should be many smaller areas where CRM can shine.

We have talked about it before, and in the economic environment I see ahead, companies will want technology solutions that can help them do four specific things better and cheaper: enhance products, extend product lines, target markets, and develop better processes that drive positive customer experiences.

Bucking Tradition

Much of the CRM world that I see is focused on the more traditional aspects of CRM, and they will be hardest hit.

I think smaller companies with innovative on-demand ideas will find traction in this environment, especially if they can help with the big four requirements above. The companies that catch will grow, be acquired and do some acquiring, and form the nucleus of the brigade that will stoke the engine of growth again in time for the elections in 2008.

The CRM areas that I would target include what is called sales effectiveness, but which is really a market basket of companies that need better definition. Also, marketing and social networking companies will, I think, find receptive audiences. Finally, the call center looks to be ready to make some changes due to the increasing availability of on-demand infrastructure.

Therefore, the strategy I would pursue in 2007 is to remain nimble and opportunistic — innovative solutions that help to lower costs should find a decent reception and opportunistic buyers might be able to score some deals.