New license revenue continues to rise in the industry, with marketing applications predicted to be the top performers through 2009, despite mergers and economic pressure.
Posted Nov 1, 2005
The worldwide CRM market's software license revenue will have grown 2.9 percent by the end of 2005 compared to 2004, and will climb to 3 percent through 2009, according to a new Gartner report. The fastest-growing subsegment of the CRM industry will be marketing automation, while customer service and support will decline slightly, according to "Worldwide Customer Relationship Management Forecast, 2004-2009."
This prediction of continued modest growth is encouraging, but it is a downward adjustment from the 7.2 percent CAGR predicted earlier this year by Gartner. Limiting factors to CRM growth include unfavorable economic conditions and ongoing industry consolidation, especially the aftereffects of Oracle's announced intent to purchase Siebel Systems, according to Sharon Mertz, Gartner research director and report author. "The forecast improves in 2007 and 2008 as the projected economic situation stabilizes, and as current PeopleSoft and Siebel customers determine whether to migrate to the Oracle technology platform or choose an alternative strategy," Mertz says in the report. "The significant consolidation occurring in the CRM market over the past three years will continue around three varieties of providers, including enterprise suite vendors, hosted solution providers, and focused providers."
The updated CAGR also reflects actual growth since the initial prediction, as well as a stabilization of currency value fluctuations. There will be a short-term decline, but only briefly, according to the report: "[Growth] is projected to slow during the fourth quarter [of 2005] if the U.S. gross domestic products drops below 3 percent as forecast," Mertz says.
Gartner expects marketing automation to achieve 11.2 percent CAGR through 2009, driven by strong vendor performance and increased interest in analytics, making it the fastest growing area of CRM by far. Marketing resource management applications will be a major focus here, because of benefits derived from cost reduction and improved operational efficiencies, according to the report. The prediction will hold true, "unless the economy worsens significantly, and buyers shift decisions back to...cost optimization and productivity improvements traditionally associated with customer service and support applications." Failing that, Mertz says, growth in customer service and support will be flat through the forecast period, with a decline in 2005 counterbalanced by "slight growth during 2006 and 2007 due to a renewed interest in cost optimization."
Other areas of note include sales applications, which Gartner predicts will grow 2.3 percent overall through 2009, with 2005's increases leveling off later in the forecast period. On-demand and hosted solution providers, whether established, major vendors or new entries to the market, are the biggest influence on sales application growth, especially in the SMB segment.
Regardless of specific subsegment performance, professional services revenue likely will experience continued growth throughout the forecast period due to increased demand for integration, migration, customization, and reinstallation, as well as the ever-present need for industry-specific expertise. Gartner also expects maintenance costs to increase as vendors "experience continuing cost pressures from customers for higher-volume discounts on new licenses" and adjust revenue models to match the changing business climate.
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