Software-as-a-service, focus on customer retention and acquisition, and verticalization are factors enabling the market's healthy growth.
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Recent research from Gartner shows continued market growth in 2006, with SAP again grabbing the most revenue and market share; sliding numbers for Oracle; and Salesforce.com increasingly gaining ground on its larger rivals, although still notably behind.
In July Gartner released "Market Share: CRM Software Market, Worldwide, 2006," which calculates the sector's software revenue--income amassed from new licenses, updates, subscriptions, hosting, technical support, and maintenance--at $6.8 billion, up from $5.81 billion in 2005. This represents an annual growth rate of 11.5 percent.
Factors like double-digit growth in the Asia-Pacific region and stout interest in vertical expertise are spurring the market, according to Sharon Mertz, a research director at Gartner and author of the document. However, she states that a sizeable portion of the market's growth can be attributed to continued adoption of on-demand functionality and focus on the front office.
SAP not only topped Gartner's ranking again, but increased both its revenue and its market share. According to Gartner, SAP captured $1.67 billion in software revenue and a 25.7 percent share of the market. SAP continues to lead revenue assessments, but is often knocked for what some pundits classify as a comparatively low number of live CRM implementations.
Oracle's combined software income equates to $1.02 billion, down from $1.33 billion a year ago, while market share fell from 22.9 percent to 15.7 percent. Rob Bois, a research director at AMR Research, has a similar estimate. In the case of Oracle and Siebel, "if you look at the combined revenues of the two companies in 2005 versus [revenue at the aggregated Oracle] in 2006, it's down about 26 percent," says Bois, who also coauthored a CRM market study released in July from AMR, "The Customer Management Market Sizing Report, 2006--2011."
There are a couple of reasons for this drop. According to the AMR report Oracle now tracks analytics revenue as infrastructure revenue rather than as applications revenue, whereas Siebel counted analytics within applications. The Siebel acquisition also directly impacted Oracle's year-over-year growth. "They have to rebuild the pipeline, and people were a little confused as to how Siebel fit into the portfolio," Bois says. "As those concerns go away and as the pipeline comes back, Oracle will turn around and it'll probably experience good growth."
Mertz says the results were to be expected: Oracle "declined this past year, but it's not atypical for that to happen when you have a lot of acquisition activity," she says.
Mike Betzer, Oracle's vice president of CRM strategy, has a different take. His position is that the Oracle conglomerate--Oracle, PeopleSoft, and Siebel together--has about 5.6 million seats, compared to "a few hundred thousand" for SAP. He adds, "Our whole focus is on implementation and making companies that buy our software successful." (SAP was unavailable for comment at press time.)
Meanwhile, on-demand player Salesforce.com, which reported subscription and support revenues of $451.6 million for the 2007 fiscal year that ended Jan. 31., an increase of 61 percent from fiscal 2006, placed a distant third in both analyst-firm rankings. (Total revenue, which includes professional services, was approximately $497.1 million, an increase of 60 percent.) As the company continues to get larger, however, some have wondered if the growth can maintain its torrid pace. In fact, during the most recent quarterly earnings call, the company provided an outlook for fiscal year 2008 revenue of from $722 million to $728 million. Even at the high end of that projected range, that's only a 46 percent year-over-year growth rate. (For more information on where other vendors placed, see "CRM Numbers Grow, But Also Mislead" and "Oracle's Smaller Slice of CRM's Bigger Pie.")
Overall, the market appears to be on a steady growth track--helped by an improvement in CRM's reputation. "CRM doesn't have the same negative stigma attached to it that it did a few years back," Bois says.
And yet hurdles--relatively high failure rates for CRM deployments; the frequent inability by users to build proper ROI metrics--are still in play, according to Bois. "A lot of CRM vendors are aggressively investing in usability, which is going to help some of those risk factors," he says. "CRM is going to become more pervasive throughout the company, but that won't happen until it becomes more palatable and easy to use by the casual user."
CRM Numbers Grow, But Also Mislead
The customer management applications market rose 8 percent in 2006, as it did in 2005; SAP and Oracle continue to lead, but their revenue figures don't tell the full tale.
Oracle's Smaller Slice of CRM's Bigger Pie
The worldwide CRM market grew 11.5 percent in 2006 to just under $6.5 billion in revenue; while SAP continues to dominate, Oracle Corp. sees both its revenue and its market share slip.
A new report from AMR on customer management indicates double-digit market growth is here to stay, though the economy remains a concern.
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