CROSS-CHANNEL, CROSS-LIFECYCLE CUSTOMER SERVICE PRODUCT AND COMPANY UPDATE
Customer Growth and Big Deals Make for an Excellent 4Q2007
By Mitchell I. Kramer, February 28, 2008

NETTING IT OUT

Customer Service suppliers closed out 2007 with a very good fourth quarter. No exceptions. All of the customer service suppliers that we cover—ATG, eGain, InQuira, InStranet, KANA, KNOVA, and RightNow—had good fourth quarters. Customer growth was the driver in 4Q2007 as it had also been in 3Q2007. $1 million+ deals made the quarter for several of the firms we cover. That customer growth produced excellent financial performance almost across the board.

Fourth quarter is typically quiet from a product perspective across the software industry. Two customer service companies had significant product activity. RightNow introduced its regular, quarterly new product version, and KANA released the next major version of its product suite, KANA 10. All other product activity was minor.

There was very little company activity in 4Q2007. Most significantly, despite what appears to be tough economic times ahead, suppliers continue to hire aggressively. That makes sense. Excellent customer service delivered effectively and efficiently keeps customer satisfaction and loyalty high and operational costs low.

In our 1Q2007 report, we stated, “Momentum is building in this space. We feel that growth will continue as companies introduce new products and customer adoption continues to broaden.” Our prediction was spot on. 2Q2007 was a very good quarter for product introductions and good for customer growth. 3Q2007 was excellent for customer growth and very good for financial performance. So was 4Q2007. We feel the momentum will continue in 2008.

CROSS-CHANNEL, CROSS-LIFECYCLE CUSTOMER SERVICE: 4Q2007

Product and Company Viability Factors

This report is the latest and twelfth of our quarterly update reports on the products and companies in our research practice on customer service. Yup, we’ve been publishing these updates for three years!

These updates focus on the product and company viability factors, factors that are important in the evaluation, comparison, and selection of customer service products.

For each of the seven customer service suppliers that we currently cover, we examine these factors:

Note that PSGroup also offers a large body of research evaluating and comparing the products against a framework of customer requirements. If you need to or want to know our take on how the products stack up against each other and/or against your requirements, take a look at our research on http://www.psgroup.com/research_cccsv.aspx. Our research is up to date and reflects the latest major version of the flagship products for all the suppliers that we cover.

Big Deals Drive a Very Good 4Q2007

Customer Service suppliers closed out 2007 with a very good fourth quarter. No exceptions. Customer growth was the driver in 4Q2007 as it had also been in 3Q2007. $1 million+ deals made the quarter for several of the firms we cover as their customers made strategic purchases at the end of the budget year. Here’s the big deal breakdown:

Supplier    Big Deals

These big deals highlight a customer acquisition trend. The number of new customers accounts acquired in the quarter was down, but, as evidenced in financial performance, the value of each customer account is up. Organizations are making bigger investments in customer service. The bigger investments will result in improved customer service. Improved customer service will result in improved customer satisfaction and loyalty and greater operational effectiveness and efficiency. With the prospect of tougher economic times ahead, customer satisfaction, customer loyalty, and improved operations can help organizations cope with lower customer spending.

Good customer growth results in good financial performance. Some of our suppliers had excellent financial performance.

Fourth quarter is typically quiet from a product perspective across the software industry. But we’re seeing a small exception in customer service. RightNow introduced its regular, quarterly new product version, and, without a formal announcement, KANA released the next major version of its product suite, KANA 10. All other product activity was minor.

Here’s a brief look at what made the quarter very good for all of our customer service suppliers:

Suppliers and Products

Just a reminder, we offer up-to-date research on these leading cross-channel, cross-lifecycle product offerings and their suppliers:

ATG

Financial Performance Drives a Very Good 4Q2007

ATG had a very good 4Q2007. Customer acquisition was good but continued flat as compared with the last two quarters. There was no product activity. Financial performance was excellent with significant increases in every metric and a return to profitability.

New Customer Growth

ATG acquired a total of 57 new customer in 4Q2007, 7 for ATG’s ecommerce and customer service offerings and 50 for eStara’s click-to-call and click-to-chat SaaS offerings. Last quarter, these numbers were 7 for ATG and 45 for eStara, and two quarters ago they were 11 and 40. On a base of approximately 900 customers built over a period of 15 years, the acquisition of 57 new customers in a quarter is very good customer growth. Note that ATG does not provide information on additional business with existing customers.

For the year, ATG acquired 34 ATG ecommerce and customer service customers and 187 eStara customers. ATG acquired eStara only a year ago. The eStara base has been a nice addition. eStara is a natural cross-sell for all of ATG’s other offerings, and, stretching a bit, those offerings could be an up-sell for eStara customers that need ecommerce capabilities.

Looking more closely at ATG’s year-over-year ecommerce and customer service customer growth, the 34 new customers acquired in 2007 is down significantly from the 50 acquired in 2006 and the 68 acquired in 2005. To be fair, ATG focused on ecommerce in 2007, while it sold both ecommerce and customer service in 2005 and 2006. For example, of the 68 customers acquired in 2005, 37 were for ecommerce and 31 were for customer service. Follow us now. ATG began to de-emphasize customer service in the second half of 2006. Therefore, we’d estimate that it acquired half as many customer service customers in 2006 as it did in 2005—let’s say 13 to 16 instead of 30 to 32. That would mean that they acquired about 35 ecommerce customers in 2006. So ATG growth in new ecommerce customers has been flat for the last three years: 34 in 2007, 35 in 2006, and 37 in 2005.

That’s really no surprise. Ecommerce growth industry-wide has been slow for the past several years. That ATG has been able to maintain even steady new customer growth in a down market is quite an accomplishment. Even better, ATG has been increasing the average sales price (ASP) of its new customer deals. In 2007, ASP was $418,000 up from $224,000 in 2006. Each deal generated 87 percent more revenue in 2006 than in 2005. So, while the number of new customers has been steady, the revenue generated from new customers has been growing significantly. As the ecommerce market improves—and it really is improving—ATG is positioned for customer growth and revenue growth.

This report continues...

To read the full report: http://dx.doi.org/10.1571/pu02-28-08cc