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Customer Relationship Management Applications Set to Double in Value

Contributed by Datamonitor.

As an increasing number of organizations understand the importance of positive customer experiences and strong customer relationships, the market for customer relationship management (CRM) applications continues to expand. In 2006, the global CRM* software market was worth just under $3.6 billion** in license revenue alone. In a new report, independent market analyst Datamonitor predicts this to reach $6.6 billion by the end of 2012, increasing at a compound annual growth rate of 10.5 percent. The report, “Economic Outlook: Customer Relationship Management,” attributes the growth to an increasing deployment of CRM in new vertical segments as well as new flexibility in modes of deployment. Nevertheless, Datamonitor expects on-demand CRM specialists to come under pressure within the next 18 months as the CRM arena becomes substantially more competitive.

Whether acquiring new, servicing current, or keeping in touch with old customers, an organization must relate to its customer base. CRM is a methodology facilitating such interaction and includes all processes, approaches, and technologies that support the CRM methodology. Implementing CRM should enable enterprises to capitalize on client interactions through nurturing client relationships, supporting sales processes, exploring customer behavior, and tailoring customer service according to the feedback received and cost constraints.

New industries and smaller organizations are deploying CRM with increasing frequency.
Reliance on subscription revenues and service capabilities will mean that the telecommunications industry will continue to be the heaviest investor in CRM technologies, along with the energy/utilities and financial services sectors. However, Datamonitor expects CRM investment by the healthcare, public sector, and life sciences markets to exceed the rate of growth in the telecommunications sector, fuelled by the adoption of a customer-oriented approach to public-sector services and the relative success of applications supporting a relational--not a transactional--approach to customers.

The composition of the CRM market is also changing in terms of the typical size of an enterprise deploying CRM. Once reserved for only the very large organizations, Datamonitor estimates that CRM application spending by enterprises with less than 1,000 employees accounted for one-third of all licenses sold in 2006. By 2012, however, the sector will account for over 42 percent of the market. “Although this implies that complex solutions for larger organizations still will account for the majority of CRM revenue, smaller CRM deployments will be increasingly important,” says Vuk Trifkovic, Datamonitor technology analyst and author of the study.

On-demand CRM is here to stay, but the landscape will be increasingly competitive.
On-demand relieves businesses of the maintenance and daily technical operations of software, offering companies the choice to let someone else host their applications for them. Datamonitor considers on-demand as an important element of CRM strategy, since subscription-based licensing and hosted architecture can address many inhibitors to CRM adoption.

Recent success of on-demand CRM providers, as well as the fact that most of the major vendors are employing some on-demand strategy, means that this innovative paradigm is clearly here to stay. Datamonitor estimates that by year-end 2007, the global on-demand CRM market will be worth $1 billion, and such applications will drive CRM adoption, particularly within SMEs.

The next 18 months will see established on-demand CRM specialists under pressure.
Nevertheless, the market will become substantially more competitive during the next 18 months. Established on-demand CRM specialists will find themselves under increased pressure both from smaller hosted-solution providers and established on-premise vendors offering on-demand versions. The implications are that subscription prices could decrease, particularly among the less differentiated entry-level solutions.

“Vendors offering on-demand CRM solutions will differentiate themselves by investing in advanced feature-sets, data-center hosting efficiencies, and integration with their own on-premise versions of CRM so that their customers will be able to migrate seamlessly between the same vendor’s hosted and more traditional editions,” concludes Trifkovic.

 

Notes
* Includes sales force automation, marketing automation, customer service automation, customer analytics, and on-demand CRM.

** Datamonitor report, “Customer Relationship Management: Global Market Forecast Model.”

Datamonitor is a premium businesses information company specializing in industry analysis, helping companies to address complex strategy issues. Datamonitor’s report, “Economic Outlook: Customer Relationship Management,” provides a detailed summary and analysis of the principal trends affecting the customer relationship management market and advises vendors on how to respond. Vuk Trifkovic is a technology analyst at Datamonitor and author of the report. For more information, visit www.datamonitor.com.