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."

by Colin Beasty

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