CRM Market Set to Double
Good news for CRM vendors: CRM software investment, adoption, and product revenues are all set to rise, according to a recent report from independent market analysis firm Datamonitor.
Though Datamonitor concedes CRM software already enjoys a relatively high penetration rate -- and estimates the 2006 global CRM software market was worth just under $3.6 billion in license revenue alone -- the research firm's analysis finds the market hasn't yet matured. In fact, the report predicts the market will enjoy a compound annual growth rate of approximately 10.5 percent through 2012, nearly doubling in size to $6.6 billion.
The report, "Economic Outlook: Customer Relationship Management," attributes that massive predicted growth to increasing deployment of CRM in new vertical sectors, such as healthcare and life sciences, as well as
to a high degree of flexibility in deployment that will bring smaller end users on board.
That growth is also inevitable because an ever-widening base of companies have come to realize that CRM applications are crucial to their enterprise application portfolio, the report says: "As the increasing number of organizations understand the importance of positive customer experiences and strong customer relationships, the market for customer relationship management applications continues to expand."
But not all is rosy for CRM vendors. Datamonitor's analysis found that many end users say they're cautious when considering CRM for fear of facing adoption issues. These companies reported several "adoption inhibitors," including:
- software complexity;
- high total cost of ownership, and
- lack of strategic support for CRM installations.
The report found the CRM sector increasingly segmented by enterprise size. Whereas CRM was once primarily the purview of large companies, Datamonitor estimates that companies with fewer than 1,000 employees made up one-third of all CRM licenses sold last year. By 2012, that sector will account for more than 42 percent of the market, according to Datamonitor's projections, and smaller CRM deployments will be increasingly important.
While the report finds that on-demand software has emerged as a credible alternative to on-premise applications, report author Vuk Trifkovic, a technology analyst at Datamonitor, doesn't expect on-demand to significantly alter the CRM market in coming years.
The on-demand application model -- in which the vendor hosts the CRM software on distant servers -- removes the end user's headache of daily maintenance and technical operations. Such applications will drive CRM adoption, particularly at small and midsize enterprises that have held back due to concerns about implementation issues, the report says.
"Although [the on-demand] method does address certain adoption inhibitors, CRM on-demand alone cannot transform the market," Trifkovic writes. The report estimates the present-day global on-demand CRM market to be approximately $1 billion. Trifkovic expects to see a substantially more competitive on-demand market over the next 18 months, however. The established on-demand vendors will face pressure from smaller ones -- and both will have to compete against the traditional on-premise vendors that now offer on-demand versions of their software.
Vendors that sell on-demand CRM applications will need to differentiate themselves with advanced feature-sets, data-center hosting efficiencies, and integration with on-premise applications of their own. Customers who choose on-demand in the future, Trifkovic says, will look to migrate between a single vendor's hosted and traditional editions.
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