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CRM software or CRM shelfware?
Excess licences ahoy...

By Alorie Gilbert

Published: Tuesday 04 March 2003

When it comes to customer relationship management software, much of what businesses purchase is never put to use, according to a new study.

A survey of nearly 700 companies conducted by research firm Gartner indicates that 42 per cent of CRM software licences purchased have yet to be installed. Gartner intends to publish the results of the survey this week at its CRM software conference in Chicago.

One caveat is that some of the respondents may intend to use more licences eventually but still are installing the software, a process that can take a year or more. But the results, according to Gartner analyst Esteban Kolsky, reflect a trend many analysts have observed recently: A lot of CRM software that's sold ends up sitting idly on buyers' shelves.

The Gartner survey is the most recent in a string of reports questioning the effectiveness of CRM software, a $3bn market lead by Siebel Systems, SAP, Oracle, PeopleSoft and Epiphany. The software makers tout CRM as a tool to help companies save money and boost customer loyalty, because it's designed to streamline corporate sales, marketing and call centre activities.

CRM was a hot growth area in the business applications market in the late 1990s but sales among the leading providers have declined amid the depressed economy. Gartner predicts that sales will remain flat this year, and its latest findings aren't likely to make the job of selling CRM applications any easier. But the real losers in all of this, Kolsky said, are the companies who sank millions of dollars into technology they never used.

The reasons for the wasted spending are varied, according to Kolsky. One cause is the aggressive discounting practices in the software industry, he said. Software companies often encourage customers to buy more licences than they may initially need by offering large volume discounts. If some buyers never use all the software they purchased, they may feel that, with the discount, it was still worth it. But those companies often fail to factor in the higher maintenance fees, which can add up to nearly a fourth of the licence cost per seat, he said. Under some software contracts, companies are required to continue paying maintenance fees annually for several years whether they use the software or not, he added.

Other reasons CRM software often goes to waste, Kolsky said, include the resistance to change and new technology among workers. Declining technology budgets at many companies also have drained the corporate coffers of funding for the consulting services needed to install the applications. Companies spend one to five times as much on CRM consulting as they do on software licences, Kolsky said. Another possibility is that companies have cut their work force as a result of the economic recession and simply have less people on staff to use the software.

Not surprisingly, news of the Gartner survey elicited a fresh round of finger-pointing among CRM rivals.

"This is the fallout of old-line CRM vendors, like Siebel, that oversold and under-delivered," said Brad Wilson, vice president of marketing for PeopleSoft's CRM unit.

Siebel representatives were not immediately available to comment.

Alorie Gilbert writes for CNET News.com.