CRM New License Revenue Grows Again

After suffering a series of fiscal missteps the CRM software license market has gotten its act together, at least enough to experience some growth. Gartner's "Market Share: CRM Software, Worldwide, 2002-2004, Preliminary" report contends that initial CRM software new license revenue amounted to $3.46 billion in 2004, a 2 percent increase from 2003's $3.39 billion. That growth comes after 2003's worldwide CRM new license revenue fell 4.4 percent from 2002's totaling of $3.54 billion. According to Sharon Mertz, research director at Gartner, part of the upsurge can be attributed to a departure from a cost-cutting mind set and a move to emphasis on increasing revenue. "The marketplace shifted from a focus on increased productivity and cost reduction to general business growth by acquiring new customers and by using CRM solutions as a differentiator and value-added component of the overall customer interaction," Mertz said in a statement. "Many buyers are becoming more knowledgeable of their actual requirements and increasingly aware of the business opportunities offered by CRM functionality, suggesting a gradual, but positive, shift in technology adoption." Enhanced interest in the hosted model, touted by vendors that include Salesforce.com and RightNow Technologies, is also a significant market driver. "The market appetite for application service provider (ASP)-hosted solutions increased substantially as customers enjoyed the ease of implementation and low-cost entry points of subscription-based offerings," Mertz said in the statement. "The availability of ASP-hosted solutions neutralized financial inhibitors to adoption for small and midsized businesses and provided solution alternatives for larger businesses." A chief segment of CRM--along with customer service and marketing automation--the sales arm pulled in the most revenue, about 42.4 percent of the total CRM market. Close on the sector's heels, however, is customer service and support, which equated to about 42.2 percent of the total CRM market. Marketing automation represented only about 15.4 percent of the total CRM market, but represents the highest growth segment with more than 31 percent growth among the top 10 providers. Of that top 10, for the second year in a row, SAP took the top spot for reported license revenue, with $601.2 million, a 23.1 percent jump from 2003's $488.4 million, while its year-over-year market share increased three percentage points to 17.4 percent. The second and third slots go to Siebel Systems, which may become a part of Oracle in early 2006, and PeopleSoft, now a wholly-owned subsidiary of Oracle. While Siebel's 2004 new license revenue grew just 2.4 percent from $467.3 million in 2003 to $478.3 million, the company did, however, maintain its strong market presence, securing its 13.8 percent market share in both 2003 and 2004. PeopleSoft earned a reported license revenue of $124 million, a 7.2 percent year-over-year increase, while its market share got a slight boost from 3.4 percent in 2003 to 3.6 percent in 2004. Oracle itself took the fourth position with $122.3 million in 2004, a 3.1 percent increase from 2003's $118.6 million. Its market share, however, remained unchanged at 3.5 percent. Salesforce.com, which is substantially smaller in revenue in comparison to SAP, Siebel, PeopleSoft, and Oracle, rounded out the top five with an impressive 84.1 percent increase in reported license revenue from 2003's $60.1 million to $110.6 million in 2004. Overall, though, CRM software new license revenue is rising, but Mertz notes market inhibitors including vendor hurdles associated with segments that are not aware of CRM's benefits and compliance issues. "Compliance requirements resulting from Sarbanes-Oxley in the U.S. and other regulatory mandates worldwide have affected growth, redirecting the focus from business cases that increase revenue to activities designed to meet stated directives," Mertz writes. "These trends are likely to continue throughout 2005 and into 2006." Related articles: The CRM Industry Is Here to Play Customer-driven opportunities foster growth in the applications market. The 2004 CRM Apps Market: Double Digits Enterprise Use of Hosted Apps Is Up