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Front-office software market heats up

Competition is getting fierce in the front-office software market, which is expected to explode from $1.9 billion in 1998 to $11 billion in 2003.

Who ever thought that the front-office software market would become the industry's next soap opera?

Indeed, Siebel, which corners the No. 1 slot, is fending off the feisty marketing mastery of Oracle, which wants nothing more than to topple Siebel's lead.

"They are hungry and they smell blood in the water," said Dave Caruso, analyst at AMR Research.

But among the smaller rivals, competition is just as fierce. Such companies as Clarify and Vantive, which are about a third the size of Siebel, are also battling for market share in front-office software, which helps businesses automate their sales, customer service, and marketing needs. The market is expected to explode from $1.9 billion in 1998 to $11 billion in 2003.

Judging by last quarter's numbers, analysts say Clarify is now clearly ahead of Vantive, which has struggled in recent months to restructure its business model and refocus on its core call center strength under its new CEO Tom Thomas. Vantive's numbers last quarter were disappointing. The company reported revenue of $48.5 million, vs. $37.7 million in its year-ago period, and posted a net loss of $1.5 million.

Meanwhile, San Jose, California-based Clarify reported encouraging results last month, announcing that second-quarter net income more than tripled to $3.4 million from a year earlier on revenues that rose 75 percent to $52.3 million. To date, the company has primarily focused on two key markets: telecommunications and the financial industry.

"Relative to Vantive, Clarify has a real clear focus," said Peggy Menconi, an analyst who follows the front-office market at AMR Research. "They're looking at those two vertical markets, and no one in the industry provides a complete set of products that will fit as a footprint in those markets."

Clarify's charismatic CEO Tony Zingale, who signed on in March 1998, takes much credit for the company's turnaround, asserting that the company's stock is trading above $30 per share, about three times what it traded at before he came on board. He added that the average software package sale is now up to about $500,000 per deal from about $200,000.

The company is now pushing new Web-based applications to customers with Zingale's hope that soon customers will access it using anything from a hand-held device to a kiosk.

Meanwhile, Vantive, which pulled in greater overall revenues for its customer support and sales software in 1998, has slumped over the last few quarters, according to analysts. Its stock has plummeted as well, trading at 9.13 a share, down from a 52-week high of 15.81. Share value has sunk about 76 percent over the past year. Nonetheless, Vantive does have a base of impressive customers including Sprint, AT&T, The Home Depot, Gateway, and British Airways.

IDC analyst Judy Hodges said she believes Clarify is smart to target specific verticals, a strategy Vantive recently decided to recommit to as well--namely utility and telecommunications.

"That's where Vantive failed by spreading itself into too many areas," Hodges said. But both Clarify and Siebel are already targeting those verticals as well, and there will be lots of heat to win customers in that market, she noted.

Zingale said Clarify is poised to expand organically with two acquisitions of small, high-tech companies within the next two months, as well as several new applications outsourcing partnerships. Clarify currently partners with Breakaway Solutions, which is offering to host Clarify's front-office applications for its customers.

While applications outsourcing--an arrangement where customers rent software from a company that manages and hosts it for them for a fee--has been an industry buzz in recent months, Zingale questioned how critical it is to the bottom line.

"I feel it's more of a marketing play today than a real customer play," he said, though he added that Clarify, like other application software makers, will probably try to lure mid-market customers with the option to rent their front office software instead of buy it.

Meanwhile, Oracle is poised for outsourcing with its own offering and Siebel partnered early with application hosting company USinternetworking. Asked about the looming competitive threat from both software giants, Zingale noted that Oracle is new to a market in which they are established. He added that the ongoing battle between Siebel and Oracle has served as a welcome distraction that doesn't involve Clarify.

But what happens in the next six months in this volatile market is anyone's guess.

"Clarify has delivered a stronger message (than Vantive)," IDC's Hodges said. "They've revamped themselves and they look to be poised for growth. Still, they face a significant threat from Siebel, and absolutely from Oracle."