Datamonitor: CRM Rising

The future of the CRM market looks rosy, according to findings from a study by Datamonitor, released earlier this month.

The service automation software market, in particular, is expected to grow at a healthy clip, from $2.32 billion last year to $4.4 billion by 2006 --a compound annual growth rate of 14 percent. Overwhelmingly, the market will be driven geographically by North America, followed by Western Europe and Asia-Pacific.

The market, though, will look very different from years past. CRM vendors had focused on direct sales aimed at high-margin enterprise customers. Some carved out niches with point solutions. But all of this is about to change.

In the wake of a global recession, IT budgets have been slashed and buying habits revisited. And now the enterprise market is a bit more hesitant to make huge CRM investments. So where does this leave CRM vendors? Down market, of course. The small- to mid-sized enterprise (SME) market remains relatively untapped. Datamonitor advises vendors to adjust their business models to meet the demand from this marketplace.

The scramble for new revenue streams has also sent increased competition into the service-automation software space -- that is, ERP vendors are weighing in. This means once-specialized service-automation software is quickly becoming a commodity, and the lines are blurring between this software and other software such as sales automation and portals. As a result, the days of the point solution vendor are coming to an end, warns Datamonitor. Witness the market consolidation: PeopleSoft bought Vantive; JD Edwards' bought YouCentric. Simply put, customers are demanding suite solutions that add greater depth and functionality to their CRM technology needs.

As demand for CRM grows, vendors must turn to the channel, building partnerships with value-added resellers, systems integrators, consulting firms and even other software developers. With the latter, CRM solutions do not exist in a vacuum, explains Datamonitor, and software vendors face limited internal resources. Despite these pointed guns, vendors still need to add greater functionality to their software products, especially in the areas of analytical CRM and knowledge management. Building relationships with software vendors that produce complementary solutions, such as an e-commerce platform, will lead to OEM, joint sales or marketing agreements that bode well for all parties.

Tom Kaneshige also writes for Line56.com