Reversal of Fortune
The CRM market is picking up steam.
For the rest of the September 2002 issue of CRM magazine please click here
The CRM industry is experiencing a tough year as corporate difficulties and overall economic woes continue to pinch IT spending. However, the market is beginning to stabilize and is poised for a strong rebound through 2005, according to recent research reports. A recent Aberdeen study called Worldwide CRM Spending: Forecast and Analysis 2001-2005 states that the CRM market will steadily grow through 2005, led largely by three macrotrends. Aberdeen expects $7.67 billion in sales of CRM software this year. Total spending will grow at a compound annual growth rate of 9.8 percent through 2005, driven mainly by sales to U.S. mid-market companies. The large-enterprise market, the report claims, is 15 percent saturated, whereas the mid-market is only 10 percent saturated. While there are more opportunities in the mid-market, the deals are smaller and will require a greater investment of resources to sell into. Aberdeen research indicates that a large part of future CRM growth will come from midsize enterprises and adoption of relatively new CRM application categories like sales force effectiveness and partner relationship management. The second factor contributing to the slow-but-steady climb in CRM sales growth is application integration. As market conditions are forcing end-user organizations to watch their pennies, they are more reluctant to pay for full suites when they can buy piece parts and integrate the rest when they have the cash. This change in adoption naturally decreases CRM revenue growth on a per-quarter basis, as customers are buying smaller packages over a longer period of time. Increased popularity of the application service provider (ASP) model is the third factor. Although this delivery model has the advantage of providing predictable long-term revenue streams to technology suppliers, in the short term it means that recognized revenues in the quarter that a CRM sale actually takes place are significantly reduced. As a result short-term growth suffers in order to achieve long-term revenue stability. An Aberdeen analyst was not available for comment at press time, but other industry executives echoed the trends. "A lot of people in the industry view CRM as fairly nascent. It's not as nascent as it was two to three years ago," says Scott Nelson, a research area director at Gartner Inc. "Technology solutions have changed. Clients are realizing they shouldn't build their initiative based on someone else's success, but instead they should build it based on what's appropriate for them. That has helped a lot of clients get sanity." Macro moves are not the only forces driving changes in the market--individual CRM vendors are changing the competitive landscape, as indicated by a recent AMR Research report, The Customer Management Applications Report, 2001--2006. "A clear trend is that ERP vendors are taking on more market share," says Joanie Rufo, research director at AMR Research. While the AMR report indicates the big CRM players are getting bigger, opportunities still exist for smaller vendors such as Unica, Documentum, and Interrelate, and underscores the emergence of new players such as Divine and Salesforce.com. Some additions to its previous year's report include the charting of two new markets: partner relationship management and contact center infrastructure and Web communication. --David Myron
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