CRM Market to Hit $17.7 Billion by 2006

The CRM market is expected to reach $17.7 billion by 2006, growing at an average annual rate of 6.7 percent, according to a new report by Aberdeen Group. Beneath this seemingly sedate growth, however, is a massive shift in how user organizations will acquire and pay for CRM solutions. "Purchasing of new CRM application software will rapidly transition to an application service provider, subscription-oriented model," says Hugh Bishop, senior vice president at Aberdeen and author of the report, "Worldwide CRM Spending: Forecast and Analysis 2002--2006." "The financial benefits and risk mitigation associated with this new model are driving user organizations to abandon the perpetual license model," he says. "CRM suppliers also see an advantage to this model, since it provides them with predictable, renewable revenues. As a result, license revenues will decline at an average annual rate of 4.8 percent, while subscription revenues will skyrocket to $2.8 billion." Bishop says it is too early to tell who will dominate the altered CRM landscape, but he does note that Salesforce.com is in a good position to take on a leadership role as the shift to ASPs occur. "They are starting from a very small customer base, but a 95 percent growth rate is impressive," he says. "But that doesn't mean that other companies will not take their technology and place it on the ASP model and compete." Traditional licensed software vendors like Siebel Systems and Oracle will "absolutely" be coming out with subscription models to compete and survive in the changing marketplace, Bishop says. Bishop also pointed out in the report that CRM spending by small and medium-size businesses is expected to exceed that of larger enterprises, partly as a result of the new pricing and software architecture models now available. "The ASP model allows many companies to buy into a CRM project now, where they couldn't afford to before," he says. The report notes that the United States will continue to be the dominant market for CRM, although its share will drop slightly over time as a result of increasing global adoption. In 2002 the U.S. accounted for $7.14 billion, or 52.2 percent, of the overall market. By 2006 that share is expected to be 51.9 percent. In addition to tracking the transition to the subscription model, the report provides market share data and forecasts for seven CRM product segments: sales automation, marketing automation, customer service automation, call/contact center management, field service management, partner relationship management, and internal help desk. Also provided is a breakdown for the U.S. by vertical market and user organization size.