CRM Growth Slows In Europe

While CRM sales have been growing worldwide to the hefty tune of almost 14 percent a year, the European market for CRM products has been lagging. A recent report by Gartner, a leading market research firm, provided the following profile of the CRM business in Europe:

Overall revenue growth slowed. Total software revenues equaled $1.9 billion in 2005, an increase of 9.7 percent from 2004. That growth was lower than the 13.7 percent increase seen worldwide in 2005 and lower than the 15.1 percent seen in Europe in 2004. However, Gartner noted that despite the lower revenue growth, the European CRM market is relatively strong compared to many other segments of the software market.

Salesforce.com and Microsoft grew in importance. While SAP and Oracle (following its acquisition of Siebel Systems earlier this year) jointly held more than 50 percent of the total CRM software market, increasing adoption of on-demand solutions produced significant gains for SalesForce.com, which grew 86.4 percent in 2005. Microsoft, a recent entrant into the CRM market, experienced the fastest growth in Europe at 88.1 percent.

Oracle/Siebel dominates the market. SAP was the number one CRM vendor in Europe based on total software revenue, with a 32.4 percent market share in 2005, up from 31.4 percent in 2004. Siebel was the second largest vendor, but was acquired by Oracle early in 2006. Oracle’s own CRM sales pipeline suffered while customers awaited affirmation of future product directions following its acquisition of Siebel, causing a short-term braking effect on CRM market growth.

Purchasing patterns vary widely by country. Gartner found that money spent on CRM software correlates strongly with economic growth measures in each country, such as gross domestic product (GDP). GDP growth in countries such as Italy and Germany remains lower than the rest of the world, while market growth in countries such as the UK, Sweden, Norway, and Denmark has been more consistent with that in North America. This means that CRM growth rates in Europe range from a slight negative to more than 27 percent, depending on the individual country.

Pricing remains highly volatile. High levels of corporate acquisitions of CRM application vendors have resulted in significant price reductions for some products. Exchange-rate fluctuations were also major contributors to the seemingly more subdued levels of CRM market growth in 2005. In particular, acquisitions of major players such as PeopleSoft early in 2005 and Siebel this year by Oracle have played a key role in pushing prices down.

More applications are being targeted at marketing groups. The highest growth in CRM software was seen in applications for marketing automation, which increased by 18.6 percent. This was followed by sales automation at 12.1 percent and customer service and support applications at a relative tame 3.6 percent. Gartner noted that European businesses are focusing on new customer acquisition, expanding wallet share, process optimization, and business accountability, which have resulted in higher demand for applications that drive revenue generation and enhance the customer experience.

Vendor acquisitions are on the rise. Gartner predicts continued high levels of vendor acquisitions in the CRM software market through 2008, where one in three CRM software vendors will be involved in a merger or acquisition (M&A) each year. Gartner believes that this ferment of M&A activity will spark a burst of innovation in CRM application research and development from 2006 to 2010, especially in Europe, where the market is still wide open for smaller, best-of-breed vendors.