CRM Sector Will Survive Software Spending Slowdown

Michael Singer

Updated · Jul 27, 2001

Total CRM software application revenues will increase from $9.4 billion worldwide by the end of 2001, to approximately $30.6 billion in 2005, according to a study by Cahners In-Stat Group.

The study, “The 3 Faces of CRM – Analysis of the Worldwide Customer Relationship Management Marketplace,” is the first of a three-part series, and it found that while North America currently represents the majority of operational CRM revenues, Europe and Asia-Pacific are expected to experience significant growth over the next five years.

Despite a sluggish global economy and a slowdown in software spending, In-Stat found that, in the long term, CRM will remain a high priority for companies.

“The current economic slowdown has led to modest performance between 2000 and 2001 for CRM application revenues, most prevalently in the more established operational CRM market,” said Kirsten Cloninger, industry analyst with In-Stat’s eBusiness Group. “And, although the growth rates for the smaller markets of analytical and interactive CRM were strong, they were comparatively lower than in previous years.”

Beginning in 2002, In-Stat predicts operational CRM revenues to grow between 30 and 40 percent through 2005. While the revenue potential of CRM worldwide is high, competition is also fierce. The CRM landscape is expected to remain volatile, with analytical and operational CRM solutions continuing to overlap. As this trend continues, In-Stat anticipates that the next 12 months will witness additional consolidation among analytical and operational vendors. As a result, growth in analytical CRM revenues will begin to decline, as operational vendors include analytical capability and increasingly absorb analytical revenues.

The United States is expected to reach roughly $8 billion in operational CRM revenues by 2005, accounting for roughly 44 percent of all operational CRM revenues worldwide. Operational solutions are defined as those that automate and manage processes associated with customer interactions of sales, marketing, service through either phone or Web.

Already sizable markets, Europe and Asia-Pacific represent the next huge growth opportunity for CRM vendors. With e-business development continuing to expand globally and the concept of CRM growing in popularity, operational CRM revenues are expected to reach roughly $3.6 billion in Europe, and approximately $2.7 billion in Asia Pacific by 2005.

The largest firms in the United States represent, and will continue to represent, the most opportunity for CRM vendors; though other markets, namely mid-sized businesses, may make attractive growth segments in the future. Large companies are expected to generate approximately $1.9 billion in operational CRM revenues by the end of the year, accounting for roughly 78 percent of the U.S. revenues. Expected to total $490 million by the end of this year, the mid-market will grow rapidly, starting in 2002. As opportunities in the U.S. enterprise market begin to decrease around 2004, the mid-market is expected to constitute a greater portion of revenues, as solution providers begin to focus more attention on them.

Mid-sized companies have a lot to gain by investing in CRM. According to a report by Datamonitor, mid-sized companies can increase revenues up to 56 percent over an eight-year time period by implementing eCRM strategies.

Datamonitor’s report, “Understanding the World of the Jetsons; The New Age of Building Customer Relationships,” also found that applying e-commerce technologies will aid manufacturers in targeting customers, integrating channels and maximizing marketing opportunities — without relying on the retailer. Consumer goods manufacturers, for example, want to own their customer relationships — build strong brands, ensure flawless delivery and provide superior customer service. Many significant customer-facing activities, however, occur at the retailer level. The emergence of new e-commerce and Web-based customer CRM technologies offers consumer goods companies a resolution to this paradox by allowing them
to take control of customer relationships. Manufacturers can expand and maximize customer touchpoints while simultaneously driving their marketing and advertising effectiveness.

“Since direct consumer contact has never been a core function for consumer goods manufacturers, harnessing new e-commerce and eCRM technologies was not a priority until very recently,” said Janae Lepir, consumer markets analyst with Datamonitor. “A rising tech-savvy population and the need to revitalize a stagnating industry have led these companies to step up their use of these new technologies.”

A common mistake among consumer packed goods (CPG) manufacturers has been to believe that having an e-commerce strategy means selling products online. But selling products online is not a core competency for CPG manufacturers, nor is it a desirable one. Currently, online sales account for only 0.2 percent of total global food and drink sales and 0.4 percent of total global personal care sales. By 2005, those percentages will have only increased to 3.6 percent for food and drink and 5.6 percent for personal care items. Companies that have moved to online sales face a triple threat: channel conflict, distribution and logistics complexity and the viability of selling consumer packed goods online. Channel conflict, especially, is becoming a serious problem as retailers become increasingly sensitive to the threat of disintermediation.

Rather than attempting to compete directly with retailers, Datamonitor found that manufacturers should view online efforts as a method to indirectly increase offline sales. By offering online product information and new product alerts, CPG manufacturers will ultimately contribute to the bottom line. In addition, leveraging the Internet as a “contribution” channel, as opposed to a “distribution channel” — combining customer data gathered over the Internet with aggregated retailer data — CPG manufacturers will have the ability to tailor marketing campaigns and offer personalized customer service.

Reprinted from CyberAtlas.

Michael Singer
Michael Singer

Michael Singer is a career coach, podcast host, and author to help you step into a career you're excited about. Currently, He is a coach and trainer helping entrepreneurs and executives achieve business and leadership success. He is also an award-winning business journalist focused on the intersection of technology, Big Data, Cloud, SaaS, SAP, and other trending technology.

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