Good news for CRM vendors: CRM software investment, adoption, and product revenues are all set to rise, according to a recent report from market analysis firm Datamonitor.
Though Datamonitor estimates the 2006 global CRM software market was worth just under $3.6 billion in license revenue alone, the research firm's analysis finds the market hasn't yet matured. In fact, less than half of U.S. companies -- 42 percent -- are using CRM, according to new research from the consulting firm KensingtonHouse. Datamonitor predicts a compound annual growth rate of approximately 10.5 percent through 2012, nearly doubling in size to $6.6 billion.
Datamonitor attributes that predicted growth to increasing deployment of CRM in new vertical sectors, such as healthcare and life sciences, as well as to a high degree of flexibility in deployment that will bring smaller-size end users on board.
Even more notable, in terms of current and future growth, is the fact that CRM's "market fertility" -- the percentage of companies deploying, upgrading, or actively considering a CRM purchase -- stands at 38 percent, according to the KensingtonHouse report.
The market-fertility figure is the metric KensingtonHouse chose to highlight, as it reveals a record number of companies deploying or planning to deploy CRM. "This is significantly above what I've seen historically, which has been 18 to 25 percent fertility," says Thomas Moriarty, the consultancy's president.
According to KensingtonHouse, the main reason for the current wave of CRM popularity is the maturity of the on-demand delivery model and functionality set. Fifty-five percent of respondents expressed a preference for on-demand, with a mere 14 percent nominating on-premise and 31 percent undecided. Though 87 percent of survey respondents were either small or midsize businesses (SMBs), Moriarty says that the preference for on-demand extends to the enterprise segment as well. (The research canvassed 437 respondents representing a population of 20,000 companies with a degree of accuracy of plus or minus 5 percent.)
On-demand's benefits include its low cost and its simplicity, Moriarty says: The model can lower the cost of a CRM deployment by as much as 60 percent while also offering an increasingly user-friendly experience.
While on-demand can be easier to implement than on-premise, adopters of either variety should still be aware of the risks of project failure. Gartner recently predicted that, by the end of 2008, "25 percent of CRM projects will be postponed or canceled because of the CRM skill shortage in consultants and systems integrators." Moriarty suggests that figure be taken in context. "Three years ago, that number would have been 75 percent," he claims.
A recent report from the consultancy Bain & Co. revealed that companies that put more effort into CRM up front (including long-term planning, unwavering executive sponsorship, and diligent change management) get more out of the technology. Those companies that put a "major effort" into CRM reported a 4.17 satisfaction score on a five-point scale, while those putting in a "limited effort" were only able to achieve a 3.53 score.
More companies now consider CRM critical to their enterprise application portfolio, according to Datamonitor: "As the increasing number of organizations understand the importance of positive customer experiences and strong customer relationships, the market for [CRM] applications continues to expand."
The report found the CRM sector increasingly segmented by enterprise size. Whereas CRM was once primarily for large companies, Datamonitor estimates that companies with fewer than 1,000 employees made up one-third of all CRM licenses sold last year; by 2012, that sector will hold 42 percent of the market.
But Datamonitor's analysis found that many end users are cautious when considering CRM for fear of facing adoption issues. These companies reported several "adoption inhibitors," including software complexity; high total cost of ownership; and lack of strategic support for CRM installations.
On-demand software has become a credible alternative, but report author Vuk Trifkovic, a technology analyst at Datamonitor, doesn't expect it will significantly alter the CRM market in coming years. (The report estimates the present-day global on-demand CRM market to be approximately $1 billion.) Trifkovic expects to see a substantially more competitive on-demand market, with established on-demand vendors facing pressure from smaller ones -- and both competing against traditional on-premise vendors that now offer on-demand editions.
The on-demand application model -- in which the vendor hosts the CRM software on distant servers -- removes the end user's headache of daily maintenance and technical operations. Such applications will drive CRM adoption, particularly at small and midsize enterprises that have held back due to concerns about implementation issues, the report says.
"Although [the on-demand] method does address certain adoption inhibitors, CRM on-demand, alone, cannot transform the market," Trifkovic writes.
Additional reporting by Demir Barlas and Jean Thilmany.