CRM Is Back on the Glory Road
The CRM market may be returning to its glory years, according to AMR Research's latest Market Analytix Report. Despite continued consolidation among the CRM suite vendors, the market grew 8 percent in 2005, which marks the second consecutive year of growth for CRM. SAP and Oracle continue to jockey for the top market-share position, Microsoft and Salesforce.com are surging up the ranks, and the software as a service (SaaS) model continues to propel the market. Hosted revenue grew 60 percent in 2005, following a 105 percent increase from the previous year, according to AMR's "Customer Management Applications Report, 2005-2010."
Overall, total CRM revenues grew 8 percent in 2005, while license revenues grew to $4.4 billion in 2005, also an 8 percent growth rate. When added to the $645 million hosted application segment, the total CRM market tops $5 billion, according to the survey. The continued emphasis on revenue and profitability continues to pull CRM software up the priority list, says Rob Bois, research director at AMR Research. Companies experiencing steady growth are now looking to replace legacy systems or update the systems currently in place.
"Maybe CRM isn't dead after all," Bois says, referring to the hard times the CRM market went through during the early 2000s and the resulting bad reputation these applications received from corporate America. Bois says the CRM market has entered its second wave, and that last year's growth numbers "weren't a fluke. Companies are learning and are better educated. They understand it's a combination of business processes and technology, plus the usability and technology of these applications have come a long way."
Bois is especially impressed with the growth of the CRM market given the heavy M&A activity of recent years, with Oracle's numerous acquisitions including PeopleSoft and Siebel, and Concerto's purchase of Aspect Communications representing the biggest. Consolidation typically results in diminished revenue figures, Bois says, but the CRM market was able to buck that trend. As a result, the market has now enjoyed an 18 percent growth spurt over the last two years. In addition, had many of these companies remained independent, the revenue numbers would have been higher. AMR Research projects an even higher 10 percent market growth next year thanks to continued SaaS growth and accelerated license deals.
SAP remains at the top spot for the second consecutive year with a 16 percent revenue share. Siebel was second at 12 percent, followed by Oracle and Amdocs, each with 4 percent revenue share. Salesforce.com continued its growth by jumping six spots from number 12 to number 6 on the list while Microsoft finished number 9.
In terms of the applications, the continued emphasis on improving customer experiences led to strong numbers for contact center applications. Customer service, contact infrastructure, and Web self-service applications account for about 50 percent of the entire market, according to the report. SFA accounts for 15 percent, but that does not include revenue from hosted applications. Web self service, which a few years ago was an emerging technology, now represents $328 million of the market, a 16 percent increase from 2004 to 2005. Marketing automation and analytics also continue to show strong growth, Bois says.
Software companies targeting the SMB segment continue to experience the fastest growth, according to the report. Salesforce.com, RightNow, Microsoft, Digital River, and Sage Group all experienced double digit growth rates during 2005. While companies under $30 million in revenue represent the largest new growth segment for CRM, enterprises still provide the bigger vendors with their bread and butter customers. Enterprises accounted for 43 percent of customer management license spending, up from $1.7 billion to $1.8 billion from 2004 to 2005. "Enterprises, thanks to renewed growth, are making more CRM purchases. Even companies like Salesforce.com and Microsoft are taking advantage of this and moving up from the midmarket by landing enterprise deals," Bois says.
In the contact center market, best of breed and niche vendors are feeling increasing pressure from the hardware companies such as Avaya, Genesys, and Cisco, Bois says. These larger vendors are increasingly brining software products to market, and because they own the telephony infrastructure, they can leverage strong sales messaging for multichannel interactions, such as phone, email, and chat.
Looking forward, Bois predicts the CRM market will continue to grow at an 8 percent five-year CAGR. "Companies continue to look to drive revenue and profitability and stave off revenue leakage at the same time," he says. "CRM is going up."
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