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Despite a 2002 drop of 5 percent in overall CRM revenues, a new Forrester (Nasdaq: FORR) Research report predicts the sector will see an increase of about 11 percent per year over the next five years. Revenues will grow from the current $42.8 billion to $73.8 billion during that timeframe, the firm contends.
Report author Bob Chatham told CRMDaily.com that a pick-up in enterprise purchases of applications will be offset partially by a drop in upgrades. As companies seek to capitalize on purchases already made, upgrade cycles are slowing considerably, he explained.
"Since this report was released," he said, "we have found that only about 10 percent of Siebel's (Nasdaq: SEBL) installed base has upgraded to version 7 from version 6. Normally, Tom Siebel would be bragging that 90 percent of customers would be on the new version within a year of release."
Services Rule
According to Forrester, professional services presently accounts for over half of the CRM market, and it will continue to dominate over the next five years. By 2007, predicts the report, revenue in the CRM services sector will reach $41.9 billion.
Of course, Tuesday's announcement that IBM (NYSE: IBM) intends to purchase the consulting arm of PricewaterhouseCoopers muddies the services market a bit. But Chatham said that he does not expect the acquisition to affect demand for services, just who provides them.
Challenges for IBM
"IBM Global Services has CRM driving a significant portion of its revenue, and PwC has been in the 22 percent range," he noted. However, since upgrades will account for less services revenue, operations will contribute a proportionately larger part of the consulting business, he noted.
Deloitte Consulting's Mark Peacock agreed, telling CRMDaily that one of the biggest challenges for IBM in the CRM consulting arena will be convincing customers that its recommendations are truly hardware and software agnostic. If the firm can do that, he said, then it will be poised to become a "first tier player" in the CRM services market.
Marketing Automation Explodes
Forrester predicts that marketing automation applications -- like those offered by E.piphany (Nasdaq: EPNY) and Unica -- will make up the fastest growing CRM segment by 2007, when revenues will reach $928 million.
This niche, like all others, will experience slower growth through 2004 -- a rate of about 14 percent. However, the growth rate will increase to over 17 percent per year after that.
Saturation Point
Among the major forces at work in the CRM market, Forrester identified technology saturation as the most important. This accounts for a current glut in unused technical capabilities and the resulting slow growth in new purchases through 2004. Channel integration, Web services and vendor verticalization come next -- all familiar issues.
In the services arena, Forrester predicted that firms specializing in operational change support will see increased interest in business process redesign as enterprises seek to encourage optimal use of expensive CRM systems.
Two cost issues that will continue to make waves in the CRM market are subscription software and offshore labor. Vendors like Oracle (Nasdaq: ORCL) that are moving toward hosted software and services will see increased demand, predicted Forrester. Application services providers like Salesforce.com will also experience growth.