Aberdeen's CRM Snapshot

The CRM market faces tough challenges in coming quarters, but the long-term outlook remains rosy. This was the key finding in a study on worldwide CRM spending released today by market researcher Aberdeen Group. 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 U.S. mid-market companies. However, growth will limp along this year at around 2.5 percent while the economy struggles to regain solid footing. Aberdeen foresees a return to double-digit growth next year. These findings are similar to those from market researchers AMR Research, reported yesterday, and ARC Advisory Group. For instance, ARC predicts a 9.1 percent CAGR through 2006. ARC reported that the CRM market slowed in 2000 and actually declined last year, effectively bottoming out following the tragic events of September 11. The market though, is poised for a rebound this year, albeit slowly. Most CRM sales will come from mid-enterprise companies (500 to 4,900 employees) and the small to mid-market businesses (20 to 499 employees), reports Aberdeen. The market for CRM among large corporations, on the other hand, is around 15 percent saturated. Enterprise customers are becoming an increasingly hard sell. Market segments aside, CRM sales will ride emerging software, namely partner relationship management and sales force effectiveness applications. Existing CRM technology, such as e-marketing automation and call-center integration, are evolving and presenting new sales opportunities. E-marketing and database marketing technologies are beginning to collide and morph into lifecycle-messaging platforms. It's good news, considering companies are loosening their marketing budgets and advertising dollars, in hopes of riding an upswing in the economy, Aberdeen says. Call-center integration, on the other hand, has been stymied by a lack of partnering among CRM application vendors and contact-center telephony and switching vendors. Few are effectively leveraging the capabilities found in their counterparts' product sets, claims Aberdeen, adding that the lack of product integration is hindering growth. Everyone knows that the poor economy is the major stumbling block for near-term growth -- but that's not all. Aberdeen points to three other growth challenges. For starters, CRM buyers have become savvy about the software and cutting-edge integration such as Web services, and thus are less inclined to shell out huge amounts for an enterprise-wide solution. All of this doesn't bode well for vendors peddling a fully integrated 'super suite' -- an ERP and CRM offering that takes years to implement. The resurgence of application service providers (ASPs) in the CRM space is also taking a toll on near-term growth. But this is more of a revenue-recognition issue than a market barrier. ASPs provide a cheap cost of entry, recognizing revenue as a service fee over time. As a result, Aberdeen says, short-term growth suffers in order to achieve long-term revenue stability. Lastly, the shift toward the mid-market opportunity means software vendors must re-tune their products and pricing. This will put a strain on already depleted resources. SMBs also tend to be more sensitive to market fluctuations, says Aberdeen. Tom Kaneshige also writes for Line56.com