After CRM investments stayed flat in 2002, recent reports indicate spending will rise, led largely by purchases from small and medium businesses (SMBs).
In the report, "CRM Spending and Satisfaction," Aberdeen Group predicts that total CRM spending on hardware, software, and consulting services for 2003 will be $15.4 billion, an increase of about 14 percent over 2002. Most of the spending will be from SMBs, according to the report's author, Denis Pombriant, vice president and managing director of CRM research at Aberdeen.
This growth and other mid-market trends continue to be fueled by the ongoing economic climate.
Everything from phased deployments to optimizing business processes to implementing self-service to the rise in hosted solutions is being spurred by companies' desire to cut costs. "It is a phenomenon that is moving up from small and medium business to larger enterprise," Pombriant says. "All of the major players will have to pay attention to compete in the future."
Many of these initiatives are happening around customer care, says Brian Bingham, lead CRM analyst at IDC. "Companies are getting into streamlining and cutting costs in these trying economic times," he says. "To go forward with CRM initiatives they have to have a business benefit and be able to improve customer service levels. It's all about reducing the cost-of-service."
Reducing costs is also driving interest in hosted solutions. Gartner CRM Research Director Wendy Close predicts that by year-end 2004, online CRM application service revenue will account for more than 25 percent of the CRM application market for SMBs. And IDC predicts that the market for application infrastructure provider outsourcing and managed services will likely grow 13.4 percent worldwide this year. "This market will continue to grow over the next five years, driven largely by enterprise needs to leverage the Web to reduce and stabilize costs, improve efficiencies in areas such as supply chains and internal operations, reach new customers through CRM and SFA capabilities, and find new markets," says David Tapper, analyst for the IT outsourcing and utility services program at IDC.
The most interesting developments in the mid-market are coming from Microsoft and hosted CRM provider Salesforce.com, Close says. Microsoft offers both a hosted and nonhosted solution, while Salesforce.com continues to be the leader in hosted CRM applications. "That is where the most growth potential exists," Close says.
Aberdeen's Pombriant says that companies' original concerns over the ethics of hosted data have been put to rest, and that CRM in general is fast becoming something companies can't do without. Because the cost of hosted solutions is far less than traditional CRM, the risk is diminished. "Lower cost and functionality are always important, but lower risk is the key," he says.
Also fueled by the economic climate is the recent shakeup at the top of the CRM pyramid (e.g., Oracle's hostile bid for PeopleSoft, Invensys' sale of Baan), the effects of which are trickling down to the mid-market. "When an industry stops growing and innovation slows, consolidation is the inevitable next step," says Erin Kinikin, vice president of e-business applications and strategies at Giga/ Forrester Research. "Size matters, and second- and third-tier players have a harder and harder time competing for mind share."
To grab that mind share mid-market vendors need to quell uncertainty rippling through the market and differentiate themselves from enterprise players that have mid-market offerings in addition to their enterprise solutions.
"All the upheaval at the top represents opportunity for existing mid-market players to grab some low-hanging fruit, but it also means that companies that were on the fence about implementing CRM might take a wait-and-see tack," says one CRM director at a Midwest manufacturing company, who asked not to be identified.
CRM Defined: OLAP database
As analytical CRM takes hold, the use of online analytical processing (OLAP) databases is increasing. This type of database system is used to process queries more complex than those handled by standard relational databases. The complex queries are answered through multidimensional access to data, or by seeking relative information using multiple criteria. OLAP databases also rely on intensive calculation capability, and specialized indexing techniques to operate successfully.