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CRM Will Sustain Its Uptake
A Gartner analyst predicts "positive but modest growth going forward" for CRM license revenue, as industry players continue to expand their offerings and quench their M&A thirst.
Posted Mar 1, 2006
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The CRM software license segment is maintaining a stretch of moderate growth, continuing its rebound after suffering a skid in 2003, according to Gartner's "Forecast: CRM Software, Worldwide, 2005-2010." License revenue grew by 4.8 percent in 2005 (based on early reporting); this preliminary figure is up from initial forecast quotes of 2.7 percent, and equates to $3.6 billion in 2005. The growth rate, which doubles that of 2004, is backed by higher-than-expected fourth-quarter earnings among many of the market share leaders, strong performances from specialized solution providers, and continued consumption of on-demand solutions provided by vendors like RightNow Technologies and Salesforce.com, according to report author Sharon Mertz, research director at Gartner. Spurred by these factors, along with early forward guidance from vendors, the research firm has boosted its CAGR forecast for 2005 to 2010 from 3 percent to 4.9 percent. "Business confidence in general is improving--decision makers are investing in processes and technologies, which drive revenue generation and enable business accountability," Mertz says. Despite positive forecast projections, vendors must remain extremely competitive in areas including license pricing, delivery models, and variety of solutions offered during the forecast period, according to the report. "Vendors have indicated strong competitive pressures, as well as pricing pressures from buyers," Mertz says. "Many buyers are on their second generation CRM implementations and are now more cognizant of requirements, and more savvy in negotiating with vendors. On-demand solutions are also putting pressure on traditional on-premise offerings-very attractive since initial capital expenses and labor implementation issues are absent." Gartner expects growth within the CRM software license market to parallel that of 2005, although the space "will be sensitive to any significant economic shifts that occur during the year," the report states. "Gartner expects that growth in 2007 will moderate slightly, due to a projected slowdown in U.S. economic growth and fractional growth in Europe, and as buyers consider their options for moving to new application architectures." In 2008 and 2009, however, the firm forecasts that the market will see a return to forward momentum, spurred by clearer buying decisions and end-user organizations engaging in migration and new implementation projects.
Regarding the three subdivisions of the CRM landscape, however, the marketing automation branch will experience an 11.2 percent CAGR through 2010, retaining its position as the fastest-growing subdivision, and mirroring an earlier Gartner estimate of an 11.2 percent CAGR through 2009. It is important to note, however, that marketing automation is the smallest of the three subsegments, according to Mertz. With a smaller starting base, the market is understandably projected to realize stronger growth levels compared to more mature segments. "However, increased interest in marketing automation [solutions] also [stem] from increased business confidence and resultant purchasing decisions," Mertz says. Customer service and support is expected to realize slight growth during 2006 and 2007 attributable to general market performance, according the report. "CSS is the most mature segment and, as such, many of the traditional call center technologies are becoming more commoditized," Mertz says. "However, there is also more interest in technologies specific to areas such as analytics and workforce optimization, so we see positive but modest growth going forward." Overall, though, Mertz notes the market's potential to continue growth. "In 2003 we reported negative growth, returning to positive in 2004. This strong showing in 2005 indicates that the market is again healthy and shows signs of continued improvement." Related articles: CRM New License Revenue Grows Again CRM Sticks to the Growth Track Midsize Businesses Are Fueling CRM's SMB Growth
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