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CRM market still on the up, say Gartner and AMR

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9th Jul 2008
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Despite wider economic concerns, research by leading analyst firms indicates that 2007 saw the CRM market in rude health. AMR Research and Gartner highlight the sector's strengths - but also find potential problems on the horizon.

Stuart Lauchlan

By Stuart Lauchlan, news and analysis editor

Credit crunch or no credit crunch, there's life in the old dog yet! The CRM market did very nicely for itself in 2007, according to reports from two leading analyst firms.

According to Gartner, sales of CRM software rose dramatically in 2007, driven in part by the take-up of software as a service (SaaS) offerings. Global spending on CRM software surged in 2007 to roughly $8.1 billion, a 23.1% jump over 2006's total of about $6.6 billion.

Some 53% of sales were concentrated in the US and 32% in Western Europe, but the emerging markets were the strongest: sales of CRM software increased by more than 40% last year in the Middle East, Africa and Eastern Europe. “The market was driven by greater contributions from emerging regions, continued rapid adoption of SaaS, and a continued focus on investments that promote customer retention and enhance the customer experience,” noted Sharon Mertz, Gartner research director.

"Customers will look to vendors to provide innovative technologies and services that assist them in proactively channelling the power of social nets into successful CRM strategies."

Sharon Mertz, research director, Gartner

During 2007, the sales subsegment of the customer management market grew 27.6%, a figure that represents 40.5% of the overall market, compared to 39% in 2006. Marketing automation products had a 15.4% growth rate, for 20.3% of the overall market, a slight drop from their 21.6% take in 2006. The customer service segment rose 22.7%, for roughly 39% market share.

"CRM vendors should focus on offering products, services and contractual arrangements that enable customers to create the optimal experience for their clients," Mertz recommended. "Top priorities include online communities, workforce optimisation, analytics, multichannel campaign management and marketing resource management.

"Businesses face increasing challenges identifying customers, determining which behaviours they should be monitoring and subsequently responding to, and which types of social media are appropriate to support their particular business and industry," she added. "Customers will look to vendors to provide innovative technologies and services that assist them in proactively channelling the power of social nets into successful CRM strategies."

A new level of maturity

Elsewhere AMR Research sized the 2007 market at $14 billion, a 12% jump over 2006 revenues. The growth rate among the top 20 vendors in the space was pitched at 28%. AMR projects a market size of more than $22 billion in 2012, noting that the customer management software market has returned to double-digit growth rates "that haven't been seen since the dot com boom." But it added that the credit crunch climate means a "great deal of uncertainty about the future surrounds most enterprise software markets.”

"This represents the strongest year-over-year growth rate for the segment since 2000, when the customer management market was still in hyper-growth," said AMR's research director Rob Bois. "The 2007 growth rate also marked a plateau for the consolidation that has suppressed growth over the past several years, indicating a new level of maturity for the customer management software market."

"This represents the strongest year-over-year growth rate for the segment since 2000, when the customer management market was still in hyper-growth."

Rob Bois, research director, AMR Research

That said, AMR reckons that CRM may be seen as an enabler in times of tight budgets and will hopefully escape the pain of the last recession. "Looking back at the last economic downturn in the 2001 to 2003 time frame, the customer management market suffered as projects were cut and vendors were acquired or went out of business," said Bois. "However, the effect on would-be buyers was even more devastating as customer satisfaction ratings plummeted for years after the economy recovered.

"An almost universal trend around customer-centricity and customer experience management will fuel continued customer management investments regardless of economic conditions," he added. "Some application categories, such as marketing analytics, become even more critical in more challenging economy as insights into customer behaviour provide better visibility into future demand and the effect of promotions and campaigns.

“Organisations are feeling more pressure from executives to demonstrate better insight into return on marketing investment. Today's marketer needs to rely more on technology to aggregate demand data, analyse customer behaviour and close the loop on campaigns. Marketing automation categories, such as campaign management and marketing analytics, will help support continued growth for the overall customer management market."

The other shadow hanging over the market is still the high rate of CRM failures, which may cause some organisations to pause for thought before throwing good money after bad. “Vendors need to find ways to build more carrots into their tools to create sustainably high adoption rates," stated Bois. "If success rates don't improve and total cost of ownership doesn't come down, buyers will find CRM investments harder to justify, especially if budgets begin to shrink."

The big tick in the box

SaaS capabilities are the big tick in the box to have in terms of functionality. SaaS represented more than 15% of the total CRM software market revenue. Gartner says this growth came from gains by pure SaaS vendors as well as traditional vendors offering on-demand solutions and vendors changing from on-premise to on-demand. Vendors that offer both on-demand and on-premise CRM are acquiring new customers and are attributing a greater proportion to SaaS in response to market demand.

AMR's Bois also expects SaaS to "dramatically outpace the perpetual license software market by double digit margins” with AMR's customer research indicating "a universal preference" for the subscription software model, regardless of company size. “SaaS has become so much a part of the fabric of the customer management market, this year we combined delivery models in ranking vendors by license revenue," noted Bois.

"If success rates don't improve and total cost of ownership doesn't come down, buyers will find CRM investments harder to justify, especially if budgets begin to shrink."

Rob Bois, research director, AMR Research

When it comes to the vendor rankings, both analyst firms place Oracle and SAP well ahead of the pack. According to Gartner, SAP continues to lead the market, accounting for a 25.4% share while Oracle came in second place with 16.3% of sales, followed by Salesforce.com (8.4%), Amdocs (5.2%) and Microsoft (4.1%). Gartner says the highest growth in the market is coming from SalesForce.com and Microsoft, which grew by 49.8% and 88.6% respectively.

AMR cited SAP, Oracle Salesforce.com, Cegedim Dendrite and Amdocs as the top five firms, accounting for 46% of worldwide market share, up from 40% in 2006 and 30% in 2005. The report states that the ongoing consolidation, which restrained growth, has reached a plateau, and predicts the current growth trend will become the state of the industry. "Clearly, the heavyweights set the pace for the market, and with economic uncertainty entering the picture in 2008, the trend will only accelerate," said Bois.

AMR said Oracle "managed to get back on its feet following a lacklustre 2006 when the vendor slowed down to digest the acquisition of Siebel," while SAP posted another "strong year" for customer management, with a 19% overall market share. Salesforce.com surpassed a million customers and "continues its quest to $1 billion by posting an impressive 51% organic growth rate."

As for the future, AMR argues that Microsoft and Salesforce.com will push into larger enterprises and "see success competing directly with SAP and Oracle” and cites Google and Zoho as important vendors in the customer management market within two years. "While Google has already partnered with Salesforce.com, expect to see something that looks a lot like CRM coming out of Google labs," predicted Bois. "Zoho will become the next Act by seeding free individual CRM seats that eventually turn into paid departmental deployments."

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By igilyeat
10th Jul 2008 03:14

Customers that look to vendors to provide innovative technology and services that proactively marry social nets and CRM strategies will find that they need more than new technologies - they also need saavy marketers that know what to do with the technology. Finding the right technology is the easier part of the equation - knowing what to do with it as it relates to creating an exception customer experience that actually works is the hard part. The devil is in the details and it all comes down to execution.
www.iangilyeat.com

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By guymilsom
10th Jul 2008 12:57

Ian is right on the money. It is important that technology vendors understand the organisational goals, brand and values as opposed to just focusing on technological features. It also helps when they understand the whole picture not just their bit.

http://www.creativelyunique.com

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By Jeremy Cox
10th Jul 2008 13:46

Interesting article and it confirms the opinion of MarketTools CEO Amal Johnson having acquired CustomerSat:
There is clearly a lot at stake and firms cannot afford to make the wrong bets. Insight into customer behaviour and the ability to listen to online communities is increasingly important.

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By Beyondbreakthroughs
10th Jul 2008 14:34

As a user of both salesforce.com and Google I can say that we are close to a system that truly empowers the user to perform. Gone are the days of thinking "Why can't they build a system that is easy to use and intuitive?" I am looking forward to seeing what SFDC and Google do in the next 6 months together.


http://www.beyondbreakthroughs.com


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By sjeales
11th Jul 2008 09:02

CRM = focusing on improving the customer experience. You can have all the best equipment and tools but its whether the information analysed is what the customer really values not what we think they value,
AND more importantly giving our customers exceptional experiences (let alone mere satisfaction) is not about WHAT you do its HOW you do it ........its about your people, their attitude and how passionate and motivated they are, a challenge in our current market places.

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By bendoman
29th Dec 2008 04:32

Really, it’s common sense of a sort. When is it more important to have readily accessible information in a handy database than right now, when that information can mean crucial extra sales as a cushion against the impact of the financial situation on your company. I’m paying out monthly for www.EnterpriseWizard.com but I do know that if we were without it, we’d be having less profits – profits which would dwarf the affordable monthly commitment.

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