Two months after AMR Research released a report predicting "The market for CRM software and services will continue to grow, but at a slower pace, particularly spending on new CRM licenses, according to the Cambridge, Mass.-based firm. Total CRM revenues in 2006 will reach $8.4 billion, up 7% from the year before, and growth will hang steady, averaging 7% per year and reaching $10.9 billion by 2010. In contrast, AMR Research, which included all customer management applications in its study -- not just the historical trio of sales, marketing and service -- predicts that the market will reach $18 billion by 2010.
Much of the new growth will come from the midmarket. Another study by New York-based Access Markets International (AMI) found that businesses with between 100 and 999 employees will spend more than $1 billion on CRM applications this year. Just 35% of the midmarket is currently using CRM applications, and spending will grow at a compound annual growth rate of 9%, according to AMI.
Spending on CRM may be on the rise, but companies are increasingly looking to leverage their existing CRM technology. Over the next five years, organizations will be looking to capitalize on the investments they've already made in CRM, according to Bill Band, analyst with Forrester and author of the report.
There are plenty of other drivers for CRM, however. Organizations still need to improve the customer experience. In fact, of 176 senior executives in North America surveyed in a recent Forrester study, 60% felt it was "critical" and 36% felt it was "very important" to improve the customer experience.
Moreover, companies are trying to boost the productivity of their customer-facing employees, the report states. Accordingly, vendors have begun focusing on improved user interfaces (UIs), as SAP has shown, bringing its popular
"The one dilemma that I see is that SAP and Siebel in particular are emphasizing this improved user interface," Band said. "[Lack of usability] has been the critical criticism of CRM for years. Those new UIs are looking pretty good. So customers are asking, 'What do I have to do to get the benefit of these new UIs?' The answer is, 'I have to upgrade.'"
Because of recent consolidation in the market, CRM buyers should tread cautiously when considering upgrades, Band warns. As vendors focus on integrating their new acquisitions and as competition declines, there will be less innovation in the market.
Software as a Service (SaaS) applications, which owe much of their success to their simplicity, are also fueling CRM investment, and though traditional license sales may slow down, SaaS or on-demand applications will continue to expand, according to Forrester.
"We do make a projection that SaaS as a portion of total sales is 8 or 9%. We see that growing to 20 or 21%," Band said. "That's a fairly dramatic shift in terms of revenues coming from subscription, as opposed to licenses."
That jives with AMR's research, which also found the midmarket and SaaS driving growth. AMR also said that Web self-service and marketing automation will contribute to CRM market growth.
"What's been happening is the mix of applications is changing," Band said. "The growth is in analytics, where people are spending incrementally. Marketing is getting greater share. Regionally, the European market is becoming more important."