How CRM Is Changing to Better Meet Your Needs

By Geoffrey James

One of the most exciting trends in CRM over the past few years has been the rapid growth of on-demand applications, where the sales team rents the use of CRM software that’s hosted on the CRM vendor’s own computers. In general on-demand CRM has a much lower initial cost than on-premise CRM, where the sales team’s firm owns and runs the computer on which the CRM software runs.

According to the market research firm IDC, sales of on-demand CRM have been growing rapidly, generating approximately $300 million dollars in revenue in 2004, the most recent year for which figures are available. That’s not a particularly large number, however, compared to other segments of the CRM market. For example, IDC estimates that 2004 worldwide revenues in the customer-care segment of CRM totaled $45.8 billion and will reach $83.5 billion by 2009. Despite the relatively small numbers, however, the market for on-demand CRM now is mature enough for IDC to draw some conclusions about how this trend is likely to develop in the future. Here are some highlights.

– On-demand is dominated by a handful of vendors. According to IDC there is a high revenue concentration among few vendors, with the top five vendors accounting for a whopping 81.6% of the total market.

– Salesforce.com commands fully half of this segment of the overall CRM market. Salesforce.com holds 49.5% market share, followed by RightNow Technologies with a market share of 13.5%.

– The on-premise vendors are beginning to adapt. Siebel Systems entered the on-demand CRM applications market in January of 2004 and managed to score a fifth place ranking among the five largest vendors.

– Companies are replacing on-premise with on-demand. Although on-demand applications currently comprise a small percentage of the overall CRM applications market, suppliers of these applications are reaching end-user organizations during critical replacement cycles.

– On-demand CRM is making CRM more flexible. CRM implementations often now involve flexible business process flows versus discrete functional implementations that lock in place a particular sales process. This reflects the gradual shift toward solution selling that requires adapting to circumstances and away from product selling, which can be more ritualized.

– Hybrid on-demand/on-premise solutions are emerging. IDC believes on-demand delivery of applications will increasingly appear as part of a hybrid environment of on-premise and on-demand applications as the broader market gains familiarity and comfort with the product and when the functionality offered meets or exceeds on-premise products.

– On-demand spurs the purchase of other software. IDC notes that on-demand CRM customers are more likely to spend additional money on software as a result of their on-demand investment. Furthermore, they are more likely to work with multiple vendors than in the past.