As the macroeconomic market and business conditions continue to slide on into 2008, a “great deal of uncertainty about the future surrounds most enterprise software markets,” notes a new AMR Research report. That includes customer relationship management.
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On one hand, the report, “The Customer Management Market Sizing Report, 2007-2012,” details the comeback that CRM systems (or what AMR calls “customer management” software) have made of late. AMR analysts Rob Bois, Marianne D’Aquila and Karen Carter note that the customer management software market returned to double-digit growth rates “that haven’t been seen since the dotcom boom.”
However, it’s important to remember just how many CRM projects were painful failures for enterprises during and right after the dotcom bust. Could we be seeing it all over again?
“Looking back at the last economic downturn in the 2001 to 2003 time frame, the customer management market suffered as projects were cut and vendors were acquired or went out of business,” write the AMR analysts. “However, the effect on would-be buyers was even more devastating as customer satisfaction ratings plummeted for years after the economy recovered.” (For a look at one company’s CRM system selection, see “Inside Pitney Bowes Choice for a Mobile CRM/ERP Solution.”)
While the AMR analysts concede that funding for customer-enhancing systems can be tight in a down economy, smart organizations will continue to invest in CRM systems because of the wealth of insights such systems can provide.
Here’s what the analysts think will be the major drivers of growth during the next four years (and will elevate the CRM market from $14 billion in 2007 to $22 billion by 2012) and what are the potential inhibitors to continued CRM expansion. In addition, the analysts predict which vendors will be thriving in 2012. (See “Report Ranks Top 10 CRM Vendors” for more on these vendors.)
What Will Drive CRM Growth
CRM systems have grown up a lot since the late 1990s. And customers have come to expect a high level of technology-based customer service in 2008. That trend will only increase.
“An almost universal trend around customer-centricity and customer experience management will fuel continued customer management investments regardless of economic conditions,” write the AMR analysts. Those organizations that “streamlined operational and supply chain efficiencies through the last economic downturn, leaving the customer experience as the most important potential competitive weapon,” will drive even more investment in CRM systems.
As to corporate funding, the analysts write that while some customer management projects have been delayed briefly, few have been cancelled outright. “Some application categories, such as marketing analytics, become even more critical in more challenging economy as insights into customer behavior provide better visibility into future demand and the effect of promotions and campaigns,” states the report.
In addition, marketing organizations “are feeling more pressure from executives to demonstrate better insight into return on marketing investment,” the analysts write. “Today’s marketer needs to rely more on technology to aggregate demand data, analyze customer behavior and close the loop on campaigns. Marketing automation categories, such as campaign management and marketing analytics, will help support continued growth for the overall customer management market.”
What Will Inhibit CRM Growth
A disturbing trend that the AMR analysts note is that “CRM failure rates remain high,” they write. “Although vendors are improving user interfaces and technologies to combat this problem, it only puts a bandage on the situation.”
To fix the problem, customer management vendors “need to find ways to build more carrots into their tools to create sustainably high adoption rates,” states the report. “If success rates don’t improve and total cost of ownership doesn’t come down, buyers will find CRM investments harder to justify, especially if budgets begin to shrink.” (For an alternative take on CRM, see “Open Source CRM Delivers More Control, Less Cost.”)
Financial services companies are known for their significant use of and reliance on customer management applications. But financial services companies are in a world of hurt right now. If this trend continues, CRM vendors “heavily reliant on this sector” could be in a world of hurt themselves, note the analysts. These vendors “will need to diversify or may not have the ability to sustain growth rates near those of 2007.”
The Vendors to Watch
It’s not a huge surprise that during the next four years SaaS “will continue to dramatically outpace the perpetual license software market by double digit margins,” the analysts predict. AMR Research survey data shows “a universal preference” for the subscription software model in customer management, regardless of company size. (For more on SaaS, see “Five Best Practices for Implementing SaaS CRM.”)
Next, the analysts contend that Microsoft and Salesforce.com will continue to push into larger enterprises and “see success competing directly with SAP and Oracle.”
Larger enterprises, the analysts state, “will stop talking about building a better customer experience and start doing it.” Enterprises will begin to add the role of chief customer officer (CCO), even in non-service industries. In turn, the report predicts that vendors such as RightNow Technologies that “specialize in cross-channel customer experience will capitalize on this trend and see accelerated growth despite economic conditions.”
Along those lines, vendors moving from a traditional perpetual license model to a SaaS model will take longer than expected to do so. “We will start to see these vendors restructuring sales, development, and even support into separate lines of business to go to market separately,” write the analysts. “Some undercapitalized vendors will not make it out of the other end of the tunnel.”
And lastly, Google and Zoho will become important vendors in the customer management market within two years, notes the report. “While Google has already partnered with Salesforce.com, expect to see something that looks a lot like CRM coming out of Google labs,” the analysts write. “Zoho will become the next Act by seeding free individual CRM seats that eventually turn into paid departmental deployments.”