INDUSTRY TRENDS: Microsoft and Salesforce.com dominate CRM market growth

The CRM industry is undergoing a disruptive transition. Two companies, Microsoft and Salesforce.com are dominating the growth of the market, putting the larger and more established vendors on the defensive.

The industry’s transition becomes clear when you examine the historical and estimated forecast revenue for the major CRM companies. Figure 1 shows the revenue that the four largest CRM vendors made over the last three years and an estimate of 2009 revenue. (The historical data is from Gartner; the estimate is simply a projection of this historical trend.)

Note the sudden rise in revenue for Salesforce.com and Microsoft relative to the established CRM vendors SAP and Oracle. Both sets of vendors have been actively courting the small and medium-size business market, since the large enterprise CRM market is largely saturated. Apparently, the approach that Microsoft and Salesforce.com are taking to build up from smaller to larger firms is working better than the approach that SAP and Oracle are taking, which is to scale down from larger to smaller firms.

Figure 1: Worldwide CRM Software Revenue, Historical and Forecast

Salesforce.com and Microsoft are also growing market share at the expense of other CRM firms. Figure 2 shows SAP and Oracle as one bar, Salesforce.com and Microsoft as a second bar, and a third bar represents all other vendors in the market. (Note: All three sectors grew in an absolute sense; this graph only compares market share.)

Figure 2. CRM Revenue Market Shares, Historical and Forecast

Note that the only category that’s growing is the one represented by Salesforce.com and Microsoft. While two companies account for only a little more than one-fifth of the CRM market, they’re still responsible for the lion’s share of the market growth.

This is not to say that there isn’t opportunity in the CRM market. The four largest vendors only account for a little more than half of the total revenue, which is strange considering that CRM has been around for more than two decades.

In most cases, software markets tend to consolidate around two or three vendors who share 90 percent or more of the market. For example, the browser market consists basically of Internet Explorer and Firefox. But while CRM analysts have been predicting a consolidation for years, it appears that there will continue to be profitable and exciting niches for companies doing innovative work. (The Sales 2.0 niche markets come immediately to mind.)