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CRM 2012 Sizing Up the CRM Software Market

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 By Chuck Schaeffer

The CRM Software Market For 2013 and Beyond

So how big is the CRM software market? It depends who you ask. According to IDC, the 2012 CRM software market is about $18 billion, while Gartner says it’s about $11 billion. Interestingly, the numbers for each analyst firm count similar elements, including SaaS subscriptions, licensed revenues and maintenance fees, but where they differ most is what they call “CRM” and where they source data. For example, is Nuance Communications a CRM company? IDC says yes, while others say no. Also, IDC sources CRM market data more heavily from the supply side, tabulating vendor revenues to measure market growth. On the other hand, Gartner tends to analyze the demand side when creating its projections.

So lets start with IDC. The numbers are still being crunched, but it looks like the CRM software industry grew almost 12% in 2012, to about $18 billion in worldwide revenues. This continues a slow but steady year over year growth rate, from 11.2% in 2011 and 6.2% in 2010, according to IDC’s Worldwide CRM Applications Tracker. This compares pretty well to the worldwide IT spend of 6% in 2012, which was down slightly from 7% in 2011, as also reported by IDC.

IDC also shares that the three CRM software sectors of sales, marketing and customer service shared a combined growth rate of more than 12 percent, while the contact center software market continued to experience low single-digit growth. Although the contact center market is predicted to maintain a positive growth rate over the 2012-2016 forecast period, IDC advises that the trend of losing market share is also forecast to continue, with contact center applications expected to lose an additional 3.4% through 2016.

According to Gartner, the traditional CRM software market exceeded $12 billion in 2012, attributing about 44% of that figure to Sales, 21% to marketing automation and 35% to customer service and support. Unlike IDC, Gartner doesn’t separate customer service and support applications measurement.

CRM Software Revenues

Gartner has suggested that the total revenue mix among CRM applications is both expanding and fluctuating. Traditional CRM, social CRM and analytics are steadily being redistributed from a 90%/9%/1% split at the turn of the century to a 70%/20%/10% allocation near the end of this year.

While the CRM software industry is a mature market, plenty of upside remains. In a study by Forrester, 55 percent of the 455 large organizations surveyed in North America and Europe have implemented a CRM solution—a surprisingly low figure considering the market sector—and the figure declines further among the SMB market. When considering the CRM market as a whole, a study by Computer Economics found that 36 percent of all organizations had CRM systems in place in 2009, and that figure increased to 51% in 2011.

CRM software adoption also varies by vertical market. According to the Current Trends in CRM Adoption and Customer Experience report by Computer Economics, professional services and technical services organizations are the CRM software leaders, with 61 percent of service businesses using CRM systems. They are followed by financial services (50 percent), manufacturers (44 percent), public sector (31 percent) and health care organizations (24 percent).

In terms of regional CRM adoption and growth, America and Europe are the global leaders. The U.S. market continues to account for just over half of all CRM software investment, followed by Western Europe (about 30%), Asia Pacific (6%), Japan (4%), Latin America (2%), Eastern Europe (2%) and MENA (2%). The UK leads CRM adoption in Europe while China leads in Asia.

When drilling down into the factors driving increased CRM spend, it’s clear that four disruptive technologies—cloud, social, mobile and marketing—are collectively contributing to the bulk of interest and investment.

Software as a Service CRM

Software as a Service CRM has grown from about nothing at the turn of the century to 24% in 2009, 26% in 2010 and looks to make up about 33% of all CRM software purchases this year.

AMI-Partners maintains the tightest focus when counting CRM software vendors, and within the U.S. market, reports that CRM software spending approached $2 billion with just under 70% being attributed to on-premises solutions and just over 30% going to SaaS CRM. AMI continues to project double digit year over year SaaS CRM growth for the next four years.

Gartner estimates 35% of all CRM software is now consumed using SaaS, and expects that figure to grow to just over 50% by 2020. When looking deeper, sales, social CRM, customer service and marketing are the four fastest-growing SaaS sectors. In fact, marketing automation is the most rapidly growing, up from 19% using SaaS marketing software in 2010, to 29% in 2011 and to over one-third in 2012.

An area of consistency among Gartner, Forrester, IDC and AMI is that net new Sales applications, predominantly Sales Force Automation (SFA), will be procured via SaaS more so than on-premise sales applications. The market has now broken the 50% SaaS threshold when it comes to SFA software.

A depressed economic climate is clearly a contributor to increased SaaS adoption, but interestingly, I see no evidence that would suggest SaaS growth would decline if and when the global economy returns to moderate growth. In fact, in my talks with decision makers, there is a consensus that CRM growth will accelerate, and SaaS CRM even more so, as businesses refocus on growing revenues as opposed to reducing costs.

Social CRM

Social CRM made its debut in 2010 by capturing 4% of the total CRM technology spend. That figure rose to 8% in 2012, and Gartner projects it will reach 10% by the end of this year. At a more macro level, IDC forecasts that global enterprise social software applications will grow from $0.8 billion in 2011 to $4.5 billion in 2016, delivering an impressive 42.4% CAGR. From a global perspective, enterprise social software growth will lead in America but all regions will see double digit growth over the forecast period.

In my daily discussions with CRM buyers and practitioners it’s become evident that companies are finally moving beyond interest, experiments and pilots for social networks, social software and collaboration tools and deploying these social technologies part and parcel with CRM solutions. While the first to market advantage may be past, the opportunities for increased prospect and customer engagement, employee and partner (internal private/social network) collaboration and customer self-service remain big wins for companies that get it right.

Mobile CRM

Closely affiliated and even symbiotic with social technologies is mobile. Gartner forecasts a whopping 500% growth rate by 2014 for mobile CRM. Tablets are leading the charge and the analyst firm predicts that by 2014 30% of sales organizations will issue tablets as the primary device for sales staff.

In a recent survey of mobile applications performed by IDC, the analyst firm found that CRM is the most mobilized business application in the manufacturing sector, with over 35% of manufacturers already mobilizing their CRM software applications. The study found that mobile CRM apps are the most suitable business applications for mobile deployment as the CRM software is tightly linked to email, often delivered from the cloud and typically used by salespeople in the field.

IDC shares that information is often available on CRM systems but is not readily accessible to staff where and when needed. As information is often only available in silos within the company and across departments, functional areas and hierarchical levels, businesses are increasingly turning to mobile devices and apps as key tools to support collaborative decision-making and open the lines of communication.

Marketing Software

2012 was the year that CRM and enterprise software vendors discovered the rise of CMOs and their IT purchasing power. A Gartner survey found that 72% of companies now have a Chief Marketing Technologist and expects this figure to grow to 87% by 2014. However, the marketing software news from Gartner that reverberated throughout the CRM industry this year came from analyst Laura McLellan who predicted that CMOs will control more IT spend than CIOs by 2017.

While her statement is often taken out of context as that amount of spend includes non-marketing software investments in digital practices and ancillary technology such as e-commerce, it’s nonetheless reflective that while IT budgets are forecast to grow 4.7%, technology induced marketing budgets are predicted to grow by 11%. The analyst firm also predicts that marketing automation will remain the highest growth CRM software sector with a 10.7% CAGR through 2016, thereby reaching just under $4.7 billion market value.

Forrester forecasts that spending on interactive marketing in the U.S. will grow from $34.5 billion in 2011, or 16% of overall U.S. marketing expenditures, to $76.6 billion in 2016, or 26% of overall U.S. marketing expenditures. Within this category, spending on email, mobile and social media marketing is forecast to grow from $4.8 billion in 2011 to $15.7 billion in 2016, representing a CAGR of 27%. Business spending on automating, analyzing and optimizing marketing and sales functions is also projected to increase. IDC predicts that the marketing automation market will grow from $3.7 billion in 2011 to $5.5 billion in 2016, while the CRM analytics market, which includes marketing and sales analytics, is forecast to grow from $2.2 billion in 2010 to $3.4 billion in 2015.

In response, CRM vendors such as Salesforce.com and Oracle have increased their marketing software acquisitions (Radian6 and Buddy Media for Salesforce.com and Vitrue, Involver and most recently Eloqua by Oracle) and begun promoting the virtues of their new found marketing clouds. Expect other CRM vendors to follow suit in 2013.

CRM Vendor Market Share Order

Oracle, Salesforce.com, SAP and Microsoft are the 'Big 4' of the CRM software market, and the only enterprise software vendors to exceed $1 billion in CRM software revenues.

According to IDC, Oracle is the number 1 CRM vendor worldwide, while Salesforce.com has moved into the number 2 position and SAP rounds out the top 3.

However, according to Gartner, SAP is the top CRM software market share leader with 18.9% market share, followed by Salesforce.com at 16.5% and Oracle at 13.9%. Gartner also predicts that Salesforce.com will surpass SAP to become the leading CRM vendor by the end of this year.

Top 10 CRM Vendors

The top 10 CRM vendors made up about 49% of the CRM software market. IBM broke into the top 10 list for the first time in 2011.

The competitive landscape for the worldwide CRM applications market is becoming decidedly more interesting. The top vendors are inching closer together with just one or two percentage points separating the leaders. One area of differentiation among the leaders is the geography where market shares are built. While Oracle holds the lead in Asia/Pacific (excluding Japan), Salesforce.com is very strong in North America and Japan. SAP is the established leader in EMEA and Latin America.

Ironically, while SaaS tends to make the CRM market more predictable in terms of revenue calculations and predictions, it also has the potential to disrupt the market share pecking order more quickly. SaaS lowers barriers to switching vendors, and unlike on-premise systems which require fork lift rip-and-replace projects which if reluctantly elected, consume months if not years along with hefty capital expenditures, SaaS CRM systems can often be replaced in weeks and without significant capital expenditures or significant changes to operating expenses. This creates a new variable which is likely to influence market share rankings and alter the CRM leaderboard in the years to come. End

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SaaS tends to make the CRM market more predictable in terms of revenue calculations and predictions, and also has the potential to disrupt the market share pecking order more quickly. SaaS lowers barriers to switching CRM vendors, and unlike on-premise systems which require fork lift rip-and-replace projects which if reluctantly elected, consume months if not years along with hefty capital expenditures, SaaS CRM systems can often be replaced in weeks and without significant capital expenditures or changes to operating expenses. This creates a new variable which is likely to influence market share rankings and alter the CRM leaderboard in the years to come.

 

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