CRM on the up with 105 per cent sales spurt

The market for CRM applications grew by 10 per cent in 2004, spurred on by the uptake of on-demand software, according to a report released on Tuesday by AMR Research.

After two years of flat CRM performance, companies began spending more on such software last year, as they focused investments on technologies designed to increase revenue rather than cut costs, AMR said. AMR analyst Rob Bois said there's reason to believe the CRM sector will expand even further in 2005 as the on-demand applications driving much of last year's market growth become even more widely accepted.

AMR reported that sales of such hosted CRM applications - or software programs maintained away from an organisation's physical premises by a vendor who oversees management of the systems - increased by 105 per cent in 2004. However, Bois cautioned that this impressive growth figure should be taken with a pinch of salt; the industry is young, and the spike is likely to level over time.

The analyst said more impressive than the jump in on-demand CRM revenues has been the news from hosted providers such as Salesforce.com that larger companies are embracing the online business tools.

Bois said: "We anticipated that we'd see some high growth rates for on-demand, and part of that is due to the fact that it is a relatively new market, and that we're at the front edge of its growth spurt. But with the customer counts of Salesforce going into hundred of thousands of users, on-demand is starting to look like a sizable component of the market."

When Salesforce reported impressive second-quarter earnings last week, the on-demand CRM company said it added 41,000 new subscribers during the time frame, bringing its total number of clients to 308,000.

According to Bois, most of the growth of the on-demand CRM market is coming from companies that have not purchased such customer-service-oriented technologies in the past, rather than from businesses swapping out existing installations.

"Our interactions talking to users indicate that the majority of [on-demand CRM] sales are being done at the departmental level of large enterprises, or in the small and midsized business space," Bois said. "I don't think that there's a lot of swapping out going on just yet but we will likely hear more about that in the future as companies get more comfortable with hosted tools."

AMR also reported that, by its calculations, SAP has become the world's largest supplier of CRM applications, dislodging long-time frontrunner Siebel. Bois said the company surpassed Siebel based largely on its success in certain industries, manufacturing in particular.

"SAP's installed base... tends to be very loyal, and we've seen that about half the time, when [an] SAP customer is evaluating CRM, they don't even look outside of SAP; it's fair to say that the other CRM vendors are having a difficult time getting into SAP shops," he added.

Bois said SAP's approach of marketing a CRM offering that is tightly integrated with its ERP tools has also contributed to the company's success but not necessarily as much as the company's focus on specific niche markets such as manufacturing.

Matt Hines writes for CNET News.com