June 13, 2006

Gartner: CRM Industry Rings Up $5.7 Billion in 2005

By David Sims, TMCnet Contributing Editor

Driven by “significant gains in license and maintenance revenue,” worldwide customer relationship management (CRM) total software revenue totaled $5.7 billion in 2005, a 13.7 percent increase from 2004, according to recently-released figures from Gartner, Inc.

“As business confidence returned in a strong commercial economy, buyers focused on products that drive revenue and expand business opportunities,” said Sharon Mertz, research director at Gartner. “Robust gains resulted from strong vendor performance across the market, continued rapid adoption of on-demand products, increasing penetration of emerging markets, and buyer recognition of CRM applications as key drivers of customer acquisition and retention.”

SAP (News - Alert) was the No. 1 CRM vendor based on total software revenue, with a 25.9 percent market share in 2005. Increased midmarket opportunity drove growth across the CRM market for both the large suite vendors and on-demand providers, such as salesforce.com. Siebel’s strong fourth quarter results drove growth, but at the expense of Oracle (News - Alert) and PeopleSoft CRM products, Gartner officials said.

Industry specialists such as Amdocs (News - Alert) also benefited from high demand for vertical market products.

Gartner has traditionally measured market share in terms of new license revenue. However, due to what they analyst firm terms “the emergence and increasing popularity of open-source software and buyer consumption models such as hosted and subscription offerings,” Gartner has moved to measure market share in terms of total software revenue. This includes “revenue generated from new license, updates, subscriptions and hosting, technical support and maintenance.”

Professional services and hardware revenue are not included in total software revenue.

CRM fares much better than the IC industry, as Gartner projects the IC industry will grow 10.6 percent in 2006 over 2005, according to a recent report highlighted in Electronic Engineering Times: “Chip sales, the firm said, will grow 14 percent in 2008, before falling to less than 1 percent growth in 2009.”

It gets worse: “Gartner analyst Jim Tully said 35 percent of existing chipmakers, or about 350 companies, will be ‘driven out of business or acquired by bigger rivals,’ according to the report.”

The only significant CRM vendor to see a drop in growth was Oracle (including PeopleSoft), which lost 11.7 percent market share. Salesforce.com (News - Alert) was the only pure on-demand vendor listed in the released Gartner figures.

“Merger and acquisition activity continued relentlessly in 2005, as large vendors acquired smaller firms and as market leaders acquired each other,” Mertz said. “Market consolidation in 2005 remained a driver for best-of-breed and suite providers by offering a compelling value proposition and capitalizing on temporary buyer uncertainty. Buyers were solidly focused on new customer acquisition, expanding wallet share, process optimization, and business accountability.”

The report is available on Gartner’s Web site.

----

David Sims is contributing editor for TMCnet. For more articles please visit David Sims’ columnist page.

(source: http://news.tmcnet.com/news/-crm-gartner-/2006/06/13/1678699.htm)