Micro Economics Shut Down Decision Review

Micro Economics Shut Down Decision

The October, 2000 announcement that Nortel Networks would enter the customer relationship management (CRM) application market by acquiring Clarify for more than $2 billion in stock stunned the majority of people. The question on everyone’s mind was, “How can a hardware giant succeed with a software business?” The answer, coming only 18 months after the acquisition closed, was that it couldn’t.

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Nortel purchased Clarify in its bid to become an eBusiness provider by extending its hardware Internet foundation product lines which include optical, local area and wireless Internet products by adding applications to manage eBusiness relationships that the Internet facilitates. Three quarters of Nortel’s customers were large communications carriers such as MCI and AT&T, newer carriers like Qwest, or wireless carriers such as Sprint PCS. The rest were corporations. Nortel made the bet that company’s spending a billion dollars on its hardware infrastructure would also be interested in its software applications.

Nortel expected Clarify to bring it further penetration into the customer interaction center (CIC) market, an area in which the company had a poor reputation spurred by a poor product release of its NT-based Symposium Call Center server that suffered from scalability and reliability issues. Nortel also wanted to bring its prospects and customers with a prepackaged, lower-cost solution with an integrated CRM/CIC product. Clarify provided Nortel with a professional services organization for CICs that it did not have, but needed to be successful in the CIC area.

The acquisition for Clarify was also in response to competitor initiatives. Lucent had recently purchased CRM supplier Mosaix and had formed a partnership with Clarify’s CRM rival, Siebel Systems. Cisco had entered the voice-networking market with the purchase of GeoTel for call center management and a partnership with WebLine for customer support capabilities.

Nortel left Clarify as a wholly owned subsidiary that was led by Clarify’s CEO, Tony Zingale. It also established a new organization that covered customer interaction via any touch point ranging from the call center through electronic commerce. The organization included Nortel’s Symposium call center solution and voice processing and speech technology and Clarify’s CRM.

At the time of acquisition, Clarify had emerged as number two vendor of CRM Software, bested only by Siebel Systems. Revenues for Clarify’s fiscal year ended in December 1998 were $130.5 million. The company had almost 800 employees in the Americas, Europe, and Asia. Broadvision was the number three supplier closely followed by Remedy. However, a new category of CRM competitors was emerging, companies that offer back-office software such as enterprise resource planning and supply chain management. These included PeopleSoft, SAP, and Oracle. Siebel Systems did not have back-office capabilities, but focused on providing tight integration with these software systems.

Although Clarify product-specific revenue after the acquisition is not available, it’s clear that Nortel’s purchase of Clarify was a dismal failure. Clarify lost its number two market position and quickly fell to number seven. Nortel sold Clarify to Amdocs, a provider of information systems to the communications industry, for $200 million in cash in November 2001, a far cry from the $2 billion in stock that it paid for the company and a figure not much more than Clarify’s 1998 revenues. Nortel also shut down its customer interaction organization.

There are several factors that contributed to Nortel’s failure to make the purchase of Clarify successful for the company. The most notable is customer demand for CRM software that is integrated with back-office software rather than a CIC. To date, Siebel Systems is the only CRM player that is not a back-office supplier that has been a success in selling CRM software to large companies.

This company succeeds by providing unmatched depth and breadth of CRM functionality with over 300 products and 20 vertical solutions to compensate for integration woes. Integration with back-office applications can cost more than fifty percent of a CRM project.

Overall, the CRM market was exceptional in 2000 with an eighty nine percent growth rate over 1999. Siebel Systems remained the number one supplier and grew its revenues from $813.5 million in 1999 to $1.79 billion in 2000. However, Siebel was the only non-back-office supplier to hold on to market leadership. Back-office vendors quickly replaced the remaining top three CRM slots as shown below.

Nortel confronted other issues with Clarify as well. Nortel prefers a distribution model for its products, while complex enterprise applications such as CRM typically involve direct sales.

And, it’s not clear that Clarify’s CRM was a good fit to complement Nortel’s Symposium. The average Symposium implementation is thirty to forty seats while Clarify’s complex software is typically used by large-scale implementations with three hundred to two thousand seats.

The decision to sell Clarify and to shut down the customer interaction division came at a time when Nortel was under enormous financial pressure caused by a downturn in the telecommunications industry and an overall economic recession.. The company’s revenues plummeted from $27.9 billion in 2000 to $17.5 billion in 2001. The company’s 2001 losses reached an astonishing $27.3 billion. The $200 million in cash that Nortel was financially immaterial to organization of this size, but it was important for Nortel to streamline its business and to focus on areas that it had better room for success. Also, Nortel listened to the voice of the customer. The customer wanted back-office and CRM integration from a single vendor or a compelling value proposition such as Siebel’s exceptional depth and breadth to justify selection of a non-back office supplier for CRM. Nortel made the right decision in putting Clarify back on the market. It couldn’t do well in a market that was on fire with eight nine percent growth, and it’s hard to imagine that would have done any better in 2001 when the CRM industry’s growth fell to six percent.


CRM Software Growth Remains Stalled,” July 24, 2002, Gartner Group

Menconi, Peggy, “Clarify is Alive and Well at Nortel Networks,” August 31, 2000, AMR


Nortel Networks Announces Expected Closing Date for Sale of Clarify Assets to Amdocs,”

Retrieved January 14, 2003 at http://www.nortelnetworks.com/corporate/new/newsreleases

Nortel Networks Reports Fesults for Fourth Quarter and Year 2001,” January 17, 2002,

Retrieved on January 14, 2003 at http://www.nortelnetworks.com/corporate/new/newsreleases

Nortel Networks to Acquire Clarify for U.S.$2.1 Billion, Establishes First Mover Advantage in Creating Second Wave of eBusiness,” October 18, 1999, Retrieved January 14, 2003 from http://www.nortelnetworks.com/corporate/new/newsreleases

Ussher, Elizabeth, “Nortel Networks Clarifies the Customer Interaction Center,” October 21, 1999, Meta Group

Menconi, Peggy, “Clarify is Alive and Well at Nortel Networks,” August 31, 2000, AMR Research

Ussher, Elizabeth, “Nortel Networks Clarifies the Customer Interaction Center,” October 21, 1999, Meta Group

Nortel Networks to Acquire Clarify for U.S.$2.1 Billion, Establishes First Mover Advantage in Creating Second Wave of eBusiness,” October 18, 1999, Retrieved January 14, 2003 at http://www.nortelnetworks.com/corporate/new/newsreleases

Nortel Networks Announces Expected Closing Date for Sale of Clarify Assets to Amdocs,” Retrieved January 14, 2003 at http://www.nortelnetworks.com/corporate/new/newsreleases

CRM Software Growth Remains Stalled,” July 24, 2002, Gartner Group

Ussher, Elizabeth, “Nortel Networks Clarifies the Customer Interaction Center,” October 21, 1999, Meta Group

Nortel Networks Reports Fesults for Fourth Quarter and Year 2001,” January 17, 2002, Retrieved on January 14, 2003 at http://www.nortelnetworks.com/corporate/new/newsreleases

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