CRM's glory years are back, report says

CRM is on a growth path once again, and while SAP and Oracle are leading the market, on-demand applications are driving the investment, according to AMR.

The CRM market is on the rebound and should continue to grow significantly over the next five years, according to the latest market report from Boston-based AMR Research Inc.

Despite a wave of mergers and acquisitions across the industry, the market for customer management applications reached $11.7 billion in 2005, a growth of 8% over the previous year and 18% over the past two years, according to the report.

"There's almost unilaterally a renewed interest in customer management software of some kind," said Rob Bois, senior research analyst with AMR. "The economy has turned around and most of it is a reaction to increased competition. Companies are starting to deploy technology to win new revenue. That's creating an environment of renewed interest in CRM applications."

AMR predicts the market for CRM products will continue to climb, reaching $18 billion worldwide in 2010. CRM joins human capital management technology, which grew to $5.5 billion in sales last year, a 12% increase, as the fastest growing business application segment.

Once again, SAP AG is leading the way. The Walldorf, Germany-based company held the biggest share of the market last year at 16%, followed by San Mateo, Calif.-based Siebel Systems Inc. at 12% and Redwood Shores, Calif.-based Oracle Corp. with 4%. Oracle

For more on the CRM market
Look back on last year's report on the CRM market 

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Historically, the caveat for SAP in these market studies is that it bundles CRM licenses with its ERP package, counting revenue for licenses that may not be in use.

"We still see a lot of spending on CRM that hasn't been deployed, particularly with SAP," Bois said, adding that SAP customers are beginning to deploy those unused CRM seats. "They aren't quite there yet. They're wrapping up the ERP upgrade. Certainly over the next year or so you're going to see licenses that were already purchased deployed."

While consolidation tends to stifle growth, CRM maintained its upward swing. In addition to Siebel, Oracle purchased PeopleSoft in 2004, then the fifth-largest vendor in the market, and the combination of San Francisco-based Salesforce.com rose to capture 3% of the market, a growth of 76%. Salesforce.com, a pioneer in the Additionally, venture capital is once again flowing into the market, and large vendors like Salesforce.com with AppExchange, its on-demand application development platform, and SAP, with its NetWeaver partner program, are providing encouraging development by smaller software vendors.

"AppExchange is one of the best breeding grounds for startups," Bois said. "It gives them a low-cost entry point to getting a good audience. It's a pretty good lead generation platform as well as a technology platform."

The small and medium-sized business (SMB) segment continues to drive investment in CRM as well. Companies like Salesforce.com, Microsoft, Digital River and the Sage Group, which serve the SMB market, all saw double-digit growth rates in 2005.

Marketing automation and Web self-service tools have seen significant growth as well. Web self-service, which was recently an emerging category of CRM technology, now makes up a $328 million market, a 16% increase.

"It continues to have some of the most impressive ROI numbers I've seen," Bois said. "It's easy to justify those projects. There's a continued emphasis on improved customer service, and that's a way of improving customer service without adding overhead."

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