As the macro-economic market and business conditions continue to slide, a "great deal of uncertainty about the future surrounds most enterprise software markets," notes a recent AMR Research report.
On one hand, the report, "The Customer Management Market Sizing Report, 2007-2012," details the comeback that CRM systems 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 dot com boom."
However, it's important to remember just how many CRM projects were painful failures for enterprises during and right after the dot com 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."
While the AMR analysts concede that funding for customer-enhancing systems can be tight in a slow economy, smart organisations will continue to invest in CRM systems because of the wealth of insights such systems can provide.
What Will Drive CRM Growth
CRM systems have grown up a lot since the late 1990s. Customers too 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 organisations 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 behaviour provide better visibility into future demand and the effect of promotions and campaigns," states the report.
In addition, marketing organisations "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, analyse customer behaviour 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."
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 pain right now. If this trend continues, CRM vendors "heavily reliant on this sector" could be in a world of pain 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. The AMR Research survey data shows "a universal preference" for the subscription software model in customer management, regardless of company size.
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 "specialise in cross-channel customer experience will capitalise 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 undercapitalised 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."