After a period of market consolidation, the customer management software market is growing at 8 percent, according to a new report by AMR Research. Rob Bois, research director and author of the study, attributes the turnaround partially to increasing demand for software as a service.

According to the report, Salesforce.com "continues to make a major impact on the customer management market." It now ranks third in terms of application revenue, just behind Oracle, which is number two, and SAP, which holds the number-one spot. If it continues at its current growth rate, Oracle could be bumped from its number-two spot in just a few years.

"SaaS is the story for CRM now," says Bois. That's because, with the advent of SaaS, some of the risk, and much of the cost, associated with CRM has come down. "You actually used to get an adverse reaction when you talked to people about CRM," says Bois. "But now, CRM is cool again."

Part of what makes SaaS so enticing, says Bois, is that by necessity, it's easier to use. "In the early years [of SaaS], AJAX wasn't around, so user interfaces had to be more streamlined and intuitive. It turns out, that's exactly what the buyer market wanted."

Bois says that's because extremely complex CRM is great for a handful of power users, but the average user needs something simpler that doesn't require a lot of training. CRM vendors are starting to realize that, and as a result, are introducing more elegant user interfaces into the market.

While projections for market growth look good, there are some inhibitors, says Bois: Failure rates for customer management deployments are still high. "Usability has come a long way, but adoption is still a hurdle for many companies struggling to provide visibility back to the users." In addition, Bois says, SaaS can make some companies forget about the implementation aspect of CRM. "They think they can take shortcuts around change management and business processes." This is a false sense of security, according to Bois. "If implementation is not done properly, [companies] can still make the same mistakes they could six years ago."

The AMR report predicts customer data integration and data quality will be the two big initiatives seeing the heaviest investment in the coming years. Bois says the study also reports an increase in inquiries about mobile technology and CRM integration. "Mobile was the hot thing in 1999 and 2000: Everyone was trying to figure out how it would revolutionize CRM. But the technology wasn't as sophisticated then." Now that business necessity is driving widespread use of CRM, Bois says that will change. "Everyone needs to have data available when they want it. And as mobile devices such as cell phones, laptops, PDAs and BlackBerrys become the de facto devices used by employees, it seems only natural that CRM data would be required on them." Bois says the much-hyped iPhone still has a ways to go before it becomes a player in the CRM field. "It doesn't integrate to Outlook, which has become the pervasive communication tool at most companies." CRM has to integrate seamlessly to calendar and e-mail, and, Bois says, business adoption of the iPhone will be low until that happens.

© 2008 CXO Media Inc.