After five years of very little revenue growth—approximately 1.5 percent per year—CRM service providers experienced 6.4 percent growth in 2011 to propel the industry toward $6.8 billion in revenue, according to the latest numbers from research firm IBISWorld.
But the good news doesn't end there. IBISWorld predicts that the growth will continue at 4 percent per year for the next five years, culminating in $8.3 billion in revenue by 2016.
Mary Gotaas, an analyst at IBISWorld, says the increased sales will come from both first-time deployments and legacy system replacements. "As CRM gets more affordable, smaller companies are finally buying," she says. "We expect these smaller firms to at least try CRM for a while."
The slow economic recovery was—and will continue to be—a prime contributor to the industry's rebound. According to IBISWorld's "CRM Systems Providers in the U.S." report, the growth is being driven by a greater corporate investment in systems and equipment to improve customer relationships. "Many companies lost customers during the recession and will want to gain back business through previous clients or new customers," the report says.
Also fueling growth is the move toward more cloud-based deployments, which generally require a smaller up-front investment, making the technology more affordable to even small and midsized businesses. Currently, 58.5 percent of all CRM services are premises-based and 38 percent are provided in the cloud, but that gap is expected to become more narrow within the next few years.
"We expect a huge shift from on-premises to on-demand as smaller firms want to use [CRM systems] to manage their customer relationships," Gotaas says.
Another attractive element of cloud-based systems is the ability of employees to log in remotely from anywhere in the world, giving firms the opportunity to extend the work-at-home option to more people. This is especially appealing to smaller firms that might not have to invest in real estate to house a few contact center agents.
Prices for these subscription-based CRM services are also expected to drop as competition with open-source providers intensifies, IBISWorld predicts.
Another notable trend identified in the report is the move by key industry players to integrate social networks and social media monitoring into their applications. This comes as companies of all sizes press the industry for solutions that will allow them to monitor and respond to mentions of their brands on sites like Facebook and Twitter. As these sites become more popular, Gotaas expects to see even more integrations.
"The advantage of social networks is the real-time aspect," she says. "Software is helping companies respond more quickly to their clients."
Gotaas also expects more vendors to offer internal social networking software similar to Salesforce.com's Chatter.
The report identifies financial services firms as the largest users of CRM systems, with 26 percent of the market, while retail and healthcare are not far behind. Broken down by industry, current market segmentation is as follows:
- Financial services: 26 percent
- Retail: 22 percent
- Healthcare and other service industries: 21 percent
- Manufacturing: 17 percent
- Education: 14 percent
Of those, financial services and healthcare are likely to see the largest increase in usage of CRM systems to ensure compliance with many new government regulations. "Since the recession, a lot more consumers are concerned about their finances, and firms will be required to track more of their customer conversations in response," Gotaas explains. "Health services also has great potential as [patient] records become digital."
As for the CRM system provider industry as a whole, Gotaas says it is moderately concentrated, with the three largest firms, SAP, Salesforce.com, and Oracle, accounting for more than 60 percent of the total industry. SAP lays claim to a 24 percent market share, while Salesforce and Oracle have shares of 19.4 percent and 16.9 percent, respectively. Microsoft's share is 4.9 percent. As demand rises, these larger firms will look to gain more market share and are expected to acquire smaller firms with advanced technology, IBISWorld predicts.