The market continues to expand, albeit at a moderate pace, as vendors achieve strong growth in SaaS applications and vertically focused solutions.
Posted Mar 22, 2007
Fueled by continued business confidence and a renewed focus on improving customer relationships, the market is expected to grow moderately in 2007 and remain healthy through 2011, with a compound annual growth rate of 11.7 percent, according to Gartner's latest forecast, "CRM Software, Worldwide, 2006-2011." "The market is doing great and exceptionally healthy," says Sharon Mertz, CRM research director at Gartner and author of the report. "We're certainly not going back to a few years ago," she says, referring to the market's crash during the first half of the decade.
Robust earnings reports and optimistic guidance from enterprise suite and best-of-breed vendors indicate a healthy beginning to 2007, Mertz says. Initial estimates based on total software revenue for 2006 rose from just over 14 percent projected growth to 15 percent at the close of the year. Contributing to growth estimates are strong earnings from market leaders, such as SAP and Oracle, as well as continued demand for industry-specific and best-of-breed solution provided by vendors such as Amdocs and Unica.
Adoption of on-demand solutions continues its upsurge, with Salesforce.com reporting its highest revenue to date, according to the report. In 2006, SAP also launched its CRM on-demand solution, and Microsoft offered a subscription-based service through its partner network. Continued application demand for analytics, campaign and lead management, and marketing resource management within marketing automation will also contribute to market growth in 2007.
While the CRM market is expected to slide slightly in 2007, Mertz says it's no reflection on the market, but primarily a result of the economic downturn forecasters have been predicting for this year. One market trend that's expected to continue regardless of economic conditions will be market consolidation as suite vendors extend their application portfolios, best-of-breed vendors acquire solutions that complement their strengths, and vertical industry players expand geographically. With Oracle and SAP owning nearly half the market, and 25 other major CRM vendors controlling another 30 percent, the remaining 20 percent is taken up by "hundreds, if not thousands, of vendors," Mertz says, "all of which are in business looking to provide a specialty or specific niche. They'll get gobbled up in the process, so the volatility will continue."
SaaS will become an increasingly critical element of buyer sourcing strategies and will drive market growth as it continues to further penetrate the enterprise. "SaaS is a solid option for certain lines of business and departments in larger companies," Mertz says. She also sees growth among best-of-breed vendors outperforming suite providers as buyer demand increases for vertical- and region-specific application functionality. "Growth rates among best-of-breed vendors will be higher. For suite providers like Oracle, SAP, and Microsoft, their sweet spot remains horizontal, but they'll continue to see strong growth amongst their vertical portfolios."
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