Intelligent Enterprise

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Weekly Analyst Report

by Mark Allen Smith
For the week of April 11, 2001

Converging Relationship Management

Consolidation brings potential opportunity to CRM users

Broadbase Software Inc. and Kana Communications Inc. agreed Monday to merge, creating Kana Software. The new company will produce an evolving suite of CRM software, focused on analytics-based customer interaction.

This merger was critical to both companies, as conditions on Wall Street have impeded the two companies' ability to garner enough confidence from the financial market for continued investment. Unfortunately, this investor skepticism does not reflect the technology and products these companies provided; both have evolved independently as best-of-breed providers in the CRM software market.

Do not get lost in the Kana "eRM" acronym, which stands for "enterprise relationship management." The combined entity provides operational, analytic, and collaborative technologies that help you effectively operate, optimize, and manage customer interactions. The better-known "eCRM" (electronic customer relationship management) market encompasses these functions.

What does this merger mean to you? Read on.

The Morass

If you plan to exploit the Internet for managing customer interactions with marketing, sales, and service, you face a morass of technology and products involved in the effective operation of these electronic channels.

More important, you need to intelligently use these interactions to your company's advantage: Build customer loyalty, satisfaction, profitability, and intimacy to better understand your customers and meet their needs.

Broadbase lays a foundation for eCRM projects: customer information, analytics, marketing automation, and electronic service software. Kana brings the collaborative technology needed to manage customer interactions through any channel (phone, email, chat, Web forms, and so on).

However, Kana Software has several competitors in this market, such as Blue Martini Software Inc., E.piphany Inc., and Siebel Systems Inc. Oracle and PeopleSoft are also slowly joining the fray.

Prognosis

This merger is a good move. The consolidation helps ensure the survival of some technology and applications that can assist in any company's CRM initiative. Both Kana and Broadbase conducted many acquisitions and proved they can integrate complementary products within a product cycle.

But the merger will not be a cake walk. The new company faces three important challenges: business strategy and market awareness, organizational alignment, and customer commitment to existing product modules.

A good business strategy is critical to survive the down financial market. In addition, Kana Software needs to do a better job of building market awareness of its offerings than either of its constituent parts did.

Organizational alignment - integration of the organizations and quick positioning of the right people - is important to creating a team that can move the combined company forward. This step is absolutely critical, as both companies have trimmed staff in response to economic conditions and acquisitions, building uncertainty and friction. Historically, both companies have faltered in this area.

Last, the companies combined have more than 1,300 customers. Many of these customers have already independently integrated their Broadbase or Kana purchases with other competitive products. Customers will have to decide if they will add the newer modules, based on their needs. They will discover whether the new Kana Software is dedicated to continued innovation of the individual modules and will support the independent use of the original products. Though company representatives say they are committed to providing this support, only time will tell if they are able to pull it off.

Measured Optimism

This combined entity brings significant value to the CRM market with its united software suite. I do not believe existing customers are at any serious risk, but they should monitor the company's direction carefully for signs of declining loyalty.

The crux of the matter is the company's financial viability, which has always been an issue and could significantly influence investment in the company and its products. Though Broadbase has cash that Kana desperately needs, both companies have to carefully manage their business and control costs while making the right investments to product integration and sales.

If you're evaluating Kana Software's products, you should work directly with senior management of both Broadbase and Kana, get commitments from them, and balance short-term risk with the reward and opportunity of what the products can provide to your e-business.

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