The customer relationship management market is on the rebound and should continue to grow significantly during 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.
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 acquired Siebel last year, but the acquisition did not close in time to be reflected in 2005's numbers.
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 Aspect and Concerto last year would have made it a top five vendor, had their 2005 revenues been combined.
After meteoric growth in the late '90s and early 2000s, CRM fell prey to a downturn in the economy and some high-profile implementation failures that scared off companies considering large purchases. But investment has picked up again and the spending on licenses and subscriptions to Software as a Service (SaaS) applications will be followed by investment in service and maintenance revenues in the years to come, according to Bois.
"Siebel had stalled and hit a wall in terms of the market," Bois said. "Customers and prospective buyers were really taking a wait-and-see approach. That's really opened up the floodgates in the past two years."
San Francisco-based Salesforce.com rose to capture 3% of the market, a growth of 76%. Salesforce.com, a pioneer in the SaaS delivery model, is helping to fuel the resurgence in CRM, according to the report. Revenue from hosted software, primarily from SaaS applications, saw 60% growth in 2005, following 105% growth the previous year.
As the top five vendors continue to capture a larger share of the market, much of the innovation will come from smaller vendors, according to Bois.
"The big vendors are going to continue to innovate from an infrastructure level with service-oriented architectures," he said. "In terms of functionality you'll see a lot of innovation from the smaller vendors."
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."
This article originally appeared on SearchCRM.com.