By the end of 2005, the weakened worldwide CRM applications market will have barely recovered to 2001 levels, and many vendors in the over-crowded market may have died out, particularly in the North American and Western European regions, warns industry analyst Datamonitor.
In its new report, Operational CRM: Identifying Niche Opportunities in a Maturing Market, Datamonitor says that, in 2002, the worldwide customer relationship management (CRM) applications market actually shrunk by 25% from the previous year, while major vendors such as Siebel and Oracle suffered serious declines in license revenues.
At the top-end of the market, vendors whose solutions extend beyond CRM to incorporate whole business processes, which sometimes involve supply chain or financial functionality, may have a distinct advantage over pure CRM providers.
Traditional sales force automation (SFA) applications, typically adopted early in the CRM lifecycle, focus on the management and control of the sales process, rather than on the analysis and intelligent use of customer data.
Meanwhile, the first bridges between analytical and operational CRM have been built in the realm of marketing automation (MA), where campaign analysis and targeting often results in demonstrable revenue generation.
According to Datamonitor, process-oriented CRM applications are going to stagnate, while enterprise-class analytics that specifically focus on customer data and front-office marketing will continue to drive MA system growth, at the expense of SFA.
For example, in North America, SFA applications will only grow at an average annual rate of 1% between 2002 and 2005, whilst MA applications will grow at an average of 6% per year over the same period. Similar trends exist in Europe, the Middle East and Africa (EMEA).
Watching the SMEs
Most vendors place a lot of faith in the power of the small/medium sized enterprise (SME) market. Penetration of core CRM applications among SMEs in almost all vertical and national markets is currently low, and there is much room for growth.
In North America, the low end of the market will grow at almost three times the rate of the high end. Similarly, in the EMEA market, Datamonitor expects the low end to grow twice as fast as the high end.
Another unknown factor in the low end of the market is the recent entry of Microsoft. "Microsoft is in the process of identifying and qualifying a reseller network for its CRM offering. This will undoubtedly shake up the competitive landscape in the SME sector," said Datamonitor technology analyst, Elsa Lion.
Markets to exploit
But despite the gloomy outlook, Datamonitor's research reveals some areas that are ripe for vendors to exploit. For example, growth opportunities for operational CRM (oCRM) exist in Asia-Pacific, and the Caribbean and Latin America (CALA). Datamonitor predicts that these regions will have average growth rates of between 14% and 20%, compared to only 4% in North America.
Datamonitor's suggestion for large enterprise software houses is to start building up reseller networks (in Eastern Europe, for example) and new satellite sales and support offices (in Asia, for example) where direct presence is a prerequisite for gaining end-user trust and confidence.