NETTING IT OUT

Customer Service suppliers began 2008 with a bang as a customer growth spurt that began in 2Q2007 continued in 1Q2008. They acquired new customers and did additional business with existing customers at a very high level. No soft first quarter this year. Companies like Aetna, Choice Hotels, Siemens Transportation Systems (the locomotive manufacturer), and Verizon Wireless made major investments in customer service software. They understand that delivering excellent customer service is the key to satisfaction, retention, and profitability. They understand that effective and efficient customer service can lower costs to serve. That’s critical in times like these when revenues are down.

Good customer growth means good financial performance, and financial performance was good for all the customer service suppliers that we cover. eGain and KANA set company records in quarterly revenue license and license revenue. Once again, those $1 million plus or “seven-figure” transactions made the quarter for several of the firms.

Product activity was slow. Customer service suppliers are gearing up for delivering major new product versions in the next two quarters. However, like clockwork, RightNow introduced its regular, quarterly release.

Company activity was generally slow, too. KANA made the biggest news by expanding its partnership with IBM to include joint development, marketing, and sales, and OEMing IBM’s SOA technology as the foundation for the next generation of customer service products.

Customer Growth, Product Activity, and Company Performance

With this report, we begin our fourth year of our quarterly updates on the products and companies in customer service. These updates focus on factors that are important in the evaluation, comparison, and selection of customer service products. More specifically, we examine these factors in our quarterly updates:

• Customer acquisition and customers growth
• Product activity
• Company activity including hiring
• Company financial performance

In our evaluations of quarterly performance, we want to see continuing customer growth, ongoing improvements in products, steady company viability, and good financial performance. We don’t want to change our evaluations based on a quarter’s news, but we do want to raise a red flag when that news deviates from a positive, multi-quarter trend, or to wave a green flag when that news is particularly good. When significant product and company events occur, we identify and highlight those that could have an impact on customer service products and technologies, suppliers, and the market landscape.

No Seasonal Slowdown in 1Q2008

First quarter is typically the slowest quarter of the year for software suppliers. In fourth quarters, customers make year-end decisions and spend whatever is left in their budgets, working to a “use it or lose it” reality. In first quarters, customers implement that software. They begin their next budget cycles. Usually they’re not ready to spend.

But there was no seasonal slowdown for customer service. Customers have kept buying products and licensing services, now for the fourth consecutive quarter, a trend that started in 2Q2007 after a seasonably slow 1Q2007. For example, both eGain and KANA, two of the public companies in our coverage, set quarterly records for both revenue and license revenue. And eGain had its best ever quarter in net income!

What Recession?

Economists say that we’re heading into or already in a recession. Markets are off. Credit is tight. Consumer spending is down. Corporate spending is down, too. Customer service is thriving in these times, and, by the large number of open job positions that customer service companies are trying to fill, customer service suppliers seem to think that growth will continue.

Delivering excellent customer service is critical in tough economic times. Retention is key. You’ve got to make every effort to keep the customers that you have so that they buy from you when they’re comfortable spending again. Many of those efforts should be customer service efforts.

Also, when spending is down, lowering costs can maintain profitability. An investment is a customer service system can lower your cost to serve. With today’s customer service technologies and SaaS licensing options, the ROI on customer service software is fast and predictable. Cross-channel, cross-lifecycle customer service software makes Web self-service more effective and more efficient, enabling customers to get more answers and solve more problems more quickly without your assistance. Customer service software delivers these same benefits to your agents who act on your customers’ behalf, answering questions and solving problems.

This Report

The report currently covers these eight customer service suppliers and products:

• eGain Service
• empolis:SLS
• InQuira 8
• InStranet Contact Centers In-Line
• KANA Service Solutions
• KNOVA Application Suite
• RightNow Service
• Talisma CIM Suite

This quarter, we welcome Talisma to our coverage, although, as we were about to publish this report, on May 21, Talisma was acquired by nGenera Corporation. (See our analysis of Talisma, below.) We also welcome empolis. We added empolis in an update to our 4Q2007 report. Now, let’s take a look at 1Q2008 performance for each of our eight suppliers individually...