E-Service Suite 1H03 Magic Quadrant

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1 Markets, E. Kolsky Research Note 28 March 2003 E-Service Suite 1H03 Magic Quadrant The 1H03 E-Service Suite Magic Quadrant shows many regressions, few progressions and, overall, a market ready to consolidate. It also features a new model for e-service solutions. Core Topic Customer Relationship Management: Business Strategies, Technologies and Apps. for Customer Service and Support Key Issues How will enterprises select customer service and support technologies and applications that most effectively support their evolving customer service strategy? What technology-enabled strategies will customer service organizations use to retain their most-valuable customers? Note 1 Inclusion Criteria for the E-Service Suite Magic Quadrant To qualify as an e-service suite vendor, it is necessary to have a minimum set of components used to deploy and support an e-service implementation. The minimum criteria for evaluation as an e-service suite vendor and for inclusion in the Magic Quadrant are: The vendor must have native support for Web self-service, and chat. "Native" means that the vendor either has built its own component or has licensed an engine and built value around it. The vendor must have integration with at least two of three systems necessary for customer service: telephony components, customer service and customer relationship management (CRM), and enterprise business applications. The vendor must have a minimum of five references of live implementations of its e-service suite solution. For the e-service suite market, 2002 was an interesting year. The prevailing mood can best be summarized with a comment from a vendor: "I am just glad that our revenue did not decline in 2002." This market, estimated to be approximately $250 million, saw revenues decline, and research-and-development budgets went down with them. Despite all this, there were newcomers to this market, and some progress was made by a few but we saw most of the vendors' ability-to-execute or completeness-of-vision scores, or both, decline. This Magic Quadrant (see Figure 1) evaluates vendors that met the inclusion criteria (see Note 1) as of the publication date. There are other vendors that also have e-service features but don't meet the minimum inclusion criteria for this Magic Quadrant. Omission from this Magic Quadrant does not mean that a vendor doesn't have e-service capabilities it means that it doesn't have an e-service suite. In addition, there is one late disqualification: divine Inc. was removed from the Magic Quadrant, despite having met all criteria, because of its current federal investigation for accounting malpractices and its recent filing for Chapter 11 bankruptcy protection. Gartner Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 Figure 1 1H03 E-Service Suite Magic Quadrant Challengers Leaders Ability to Execute RightNow Technologies Siebel Interactive Intelligence Oracle SAP ServiceWare Firepond Kana Avaya Edify Talisma Broad Daylight PeopleSoft Chordiant egain Amacis As of February 2003 Niche Players Visionaries Completeness of Vision Source: Gartner Research (February 2003) To better understand this Magic Quadrant, refer to criteria used in grading the vendors (see "E-Service Suites: Evaluation Criteria for a Changing Market") and consider the progress for the market. The slow progress toward the customer interaction hub (CIH) continues (see "Customer Service Hype Cycle 2003: Strategy Comes First"), although it is even slower because of the economic downturn. The vendors in this Magic Quadrant were judged, in terms of their vision, with a heavy emphasis on their strategy to move toward the CIH. This migration, which should continue through the next 24 to 36 months, will see the first implementation of a CIH by late 2004 (0.8 probability). Once the CIH is achieved as a working model, we expect the need for this Magic Quadrant to disappear, as the functions performed by the e-service suites will be merged into the CIH and will be evaluated within the Customer Service Magic Quadrant. Leaders There is only one leader in this market. Siebel Systems stabilized and completed its e-service offering following a move to v.7. At launch, Siebel v.7 had a complete e-service suite solution, but comments from customers revolved around features that did not function properly, such as the Banter Systems integration (Siebel Smart Answer product). Toward the end of 2002, the v.7.5 e-service suite from Siebel was, by accounts of customers using it in labs and limited pilots, better, and it was 28 March

3 gaining "mind share" among prospects and pilot and lab customers. Siebel's vision is not original, nor does it drive the market. Siebel is an excellent follower when it comes to adopting and implementing vision, following other vendors in the market. Its vision meets the demand from clients and matches other vendors, yet some of the components necessary for it are obtained from elsewhere under original equipment manufacturer agreements and integrated into Siebel's product weakening the solution. Examples of this are the license of Banter for natural-language processing and Pixion for collaboration tools. On the strength of its financial situation and completed implementations, Siebel will remain the leader in e-service suites through 2004 (0.8 probability). Challengers RightNow Technologies moves into the Challengers quadrant, from the Visionaries quadrant, for its improved ability to execute. Although its vision score declined, mainly due to its vision for becoming a CIH product, its vision for multichannel solutions remains strong. The large number of references that have implemented its product has increased its ability to execute to a level comparable to Siebel's. Two problems mar its vision score in addition to the CIH: 1) its lack of integration with enterprise systems (such integration can be custom-made, if needed, for each implementation), and 2) its remaining a hosted model for the majority of its customers. Customers, hosted and licensed, are very satisfied with the results they obtain from RightNow, and this is due mostly to the effectiveness with which they work together to improve Web sites and improve the accuracy of knowledge bases. RightNow has proved that, when implementing e-service suites, best practices and constant maintenance count more than "latest and greatest" technical prowess. The company expanded its professional services from nonexistent to approximately 15 percent of its revenue (our estimate RightNow is a private company, and we don't have access to audited records). Visionaries Broad Daylight has created a Java 2 Platform, Enterprise Edition (J2EE) architecture that deploys efficiently across many channels, and it has done a good job of growing its implementations within its established clients. It traditionally has brought in its customers, albeit at a slow growth rate for new customers, through a hosted pilot or single-department initial implementation, proving the value of the product and then growing into an enterprisewide or multidepartmental solution. In the process, it leverages the product across channels and 28 March

4 functions. It has recently deployed one of the first voice-xml deployments fed from the original knowledge base. egain Communications remains a visionary with v.6.0, released in March Despite financial troubles, it obtained a loan from its founder to continue operations in 4Q02, and it managed to continue evolving and improving its product. Its longterm success hinges on the continued stability of its financial situation it reached earnings before interest, depreciation and amortization (EBIDA) profitability in 4Q02 and early customer adoption and implementation of the new version. Kana made good progress financially through 2002, having put many downturns and problems behind it. Despite being financially stable, it seems to be involved in a survival strategy that is hurting its product and vision. It improved its ability to execute but seemed to have lost its vision for an integrated CIH by focusing too much on survival. Kana was supposed to release its new integrated J2EE suite in June 2002, but instead it announced a delay of almost 18 months. It focused on cutting costs, delegating most of its sales and implementation services to its consultant partners increasing its average deployment price while remaining a provider of point solution offerings and maintaining its products at the level they were at the end of Recently, after securing its financial position, it seems to have refocused its product vision. For more-detailed information on our position on Kana, see "Kana's Execution Will Lead to Acquisition." Niche Players Amacis is a new player in this Magic Quadrant. An Irelandbased company that started as an -only solution, it has an innovative categorization solution that is beginning to include other channels (chat and phone). Most of its deployed solutions cater to small and midsize businesses. Amacis needs to increase its customer base and prove the scalability of its platform to become a core player in e-service suites. Avaya has managed to increase its momentum and mind share with clients, yet it still fails to deliver on the promise of the Quintus acquisition (despite having completed the integration). Its product (Customer Interaction Center) improved significantly (most notably by being available to anyone, whether they have Avaya switches or not), and it promised a new vision, more in line with the CIH, to be delivered through 2003 in stages. Avaya's sales for 2002 are unavailable, but we expect them to improve when it releases a new version in 2Q March

5 Chordiant Software has a good architecture, but it has greater momentum and success with the other applications in its CRM suite, such as marketing, than with e-service. Nevertheless, e- service customers we contacted seem satisfied with the solution. Chordiant has a strong following in financial services and with organizations located outside of the United States. Edify has a good architecture and interesting product, but, because of conflicts with its parent organization, it failed to gain traction outside of the financial services industry. A rumored spinoff from S1 could help it to extend outside of financial services, but we don't expect the separation to be effective during 2003, and it will be sold for its intellectual property (0.8 probability). Firepond has provided a dismal financial perspective for its e- service solution. It has not provided new references, and its revenue has been declining dramatically in the past year. We expect Firepond to divest its solution before the end of 2003 and be integrated into a midmarket solution (0.8 probability). Interactive Intelligence continues its position as a niche player, not having shown much improvement during the past year. However, the average size of its implementations has grown, and it is beginning to see some traction with larger clients. In addition, its solution positions it well for the CIH, if it can create more momentum. Oracle's product continues to improve, yet components such as imeet (collaboration tools) are still in beta testing. Oracle needs to do more than cater to just its clients' needs, and its architecture has to evolve to accommodate multichannel approaches more efficiently than it currently does. Oracle needs to gain mind share for its CRM components outside of its installed base to show that it can be a key e-service suite player. PeopleSoft is a newcomer to this Magic Quadrant that did not meet the minimum inclusion criteria last time. It developed its own solution for an e-service suite from the limited functionality it had, and it did a good job. The solution does not measure up to best-of-breed solutions, but it provides the basic e-service functionality (Web self-service, and chat) for PeopleSoft's CRM clients, and the PeopleSoft strategy is focused on expanding e-service into a key element of its CRM solution. SAP is another newcomer, yet its solution is not quite as advanced as those of the other CRM suite vendors. SAP created e-service functionality that does what its clients need it to do (very limited , Web self-service and integrating a cobrowsing solution to complement the chat product), but it is 28 March

6 limited to basic functionality (for example, there is no autoresponse for an response management system mostly workflow and routing functions). To become a player in e- service suites, SAP needs to create a product that works beyond what its customers need and that attracts new prospects and customers. ServiceWare Technologies is a new addition to this Magic Quadrant, having evolved from a help-desk-oriented self-service solution. Its product has complete, albeit basic, functionality across channels. Its efficient Web self-service solution needs to evolve across other channels, and we expect to see this product continue to improve through the next 12 months, as it shifts its focus away from the help desk into customer service solutions. Talisma has improved its execution and, to certain extent, its vision, and it continues to be a midmarket player focused exclusively on Microsoft technologies. Despite some interesting new additions, such as wireless clients, its ties to Microsoft put it out of reach for many enterprises. We expect this solution to continue evolving through the next 12 months, although the architecture will not change. Acronym Key CIH Customer interaction hub CRM Customer relationship management EBIDA Earnings before interest, depreciation and amortization J2EE Java 2 Platform, Enterprise Edition Bottom Line: Changes in the way e-service will be used, as a function of the customer interaction hub, and the lack of growth in the customer relationship management market yielded few forward moves in this year's E-Service Suite Magic Quadrant. There were, however, new products and versions from the enterprise software vendors to indicate an acceptance of e- service as an enterprise solution. As we look forward to the upcoming consolidation in the market, we see many products (mostly from niche vendors and down-on-their-luck visionaries) that will prove valuable for vendors looking to expand their offerings in e-service. We expect that, by 2005, fewer than 20 percent of current products will exist in the same format that they do today, having fallen to acquisitions or mergers (0.8 probability). 28 March