The short-term outlook for the customer relationship management sector remains stormy and the current industry-wide downturn may extend well into the future, according to the latest market analysis issued by Gartner Inc.'s Dataquest division.
In its quarterly CRM report, the Stamford, Conn.-based market research firm predicts that the tragic events of Sept. 11 and the related economic slowdown have only served to intensify the ongoing enterprise software market shakeout and may continue to do so for the coming 18 months. Dataquest researchers also said fourth quarter software license revenue growth will fall well below the historic year-end high-growth pattern.
While Dataquest predicts that demand for CRM software will continue, driven largely by solid return-on-investment propositions, the firm said it believes global spending on applications will continue to suffer through 2002 and that sales growth will remain below peak levels at least through 2003.
Despite the bleak outlook, report author Tom Topolinski, lead analyst for Dataquest's Worldwide Applications Software group, still believes some CRM makers will be able to record gains.
"There are some vendors that are not dealing with negative growth," he said. "These are larger vendors that span across different software sectors, such as those that are offering CRM, ERP (enterprise resource planning), supply chain and e-commerce offerings. Those particular vendors are holding their own. PeopleSoft is one, SAP is another, as opposed to the pure-plays in CRM who appear to be pretty challenged at the moment."
Industry shakeout continues
According to Topolinski, the creation of this hyper-competitive market environment will lead to price cutting across the CRM industry and a strong likelihood that some of the stronger players will absorb their struggling competitors through mergers and acquisitions.
"This is a great opportunity for companies with large cash reserves and solid business management to go out and fill in functional deficiencies throughout their software portfolios through acquisition," the analyst said. "There are some really good companies out there that aren't faring well financially, but not necessarily because they have bad products. Many have great technology and great assets within their engineering groups."
However, Topolinski said he believes the increased level of mergers throughout the CRM sector may also serve as a short-term inhibitor to market growth as customers wait for the dust to settle.
Dataquest reports that during the first half of 2001, the CRM sector saw 12% growth over the first half of 2000. However, the third quarter saw a nosedive to negative growth of 31% compared to the year-before quarter. The firm predicts that 2001 will finish with negative 8% growth for the year, compared to 89% growth for 2000.
Based on these conclusions, Dataquest believes CRM vendors must focus tightly on retaining existing customers while still seeking out new business. This will put an even greater emphasis on delivering short-term return on investment, according to the report.
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