Gartner Projects Slowing Growth for CRM Software Sales

Published: September 17, 2007

by Timothy Prickett Morgan

Software as a service, or SaaS, is having a major and transformative effect on the market for customer relationship management (CRM) software--perhaps as big of an effect as CRM had on the ERP software market a decade ago.

The analysts at Gartner have put together their prognostications for the CRM market, where SaaS first took off in a big way thanks to Salesforce.com, and while the press releases are all about how this market will continue to grow, if you do the math on the numbers that Gartner presents, you will actually see that Gartner expects for growth to slow every year from 2006 through 2011.

Gartner's reckoning of CRM software sales includes annual sales for perpetually licensed software products as well as for CRM applications delivered through the SaaS model. In terms of customer IT budgets, this is a bit like mixing apples and oranges, since perpetual pricing is paid mostly upfront and then amortized over a number of years while SaaS has minimal upfront costs and you only pay for what you use. But from the vendor's perspective, the Gartner numbers project how much CRM money will be available worldwide for spending in any given year, which is useful.

According to Gartner's estimates, the CRM software market came to $6.5 billion in 2006, and about 12 percent of that, or about $780 million, came from SaaS licenses. In 2007, Gartner expects the overall CRM software market to grow by 14 percent to $7.4 billion, but the SaaS slice of the CRM pie will grow at twice that rate and exceed $1 billion in sales. The analysts expect that the CRM space will reach some natural limits to growth, just because of market expansion over the past decade, and that adverse economic conditions will also cause customers to cut back a little on CRM spending in the next 12 to 18 months. Gartner is projecting growth of 12.5 percent in 2008, to $8.3 billion; 11.3 percent in 2009, to $9.3 billion; 11 percent in 2010, to $10.3 billion; and 10.7 percent in 2011, to $11.4 billion. Even with slowing growth, this is a lot of money, and represents nearly a doubling of the market in six years.

"The sustained performance of major on-demand solutions providers is driving the growth in the SaaS segment," explained Sharon Mertz, research director at Gartner, in a statement accompanying the projections. "As businesses refresh existing sales force automation systems to align with their renewed drive for business and revenue growth, we expect this to push sales software to become the largest CRM subsegment by 2011. In late 2008 and 2009, forward momentum will return to the market as buying decisions become clearer and customers undertake platform migrations to service-oriented architectures. Increasing demand for analytics, marketing automation and a focus on SaaS solutions will also drive growth during this time. Buyer application selection will continue to focus on areas showing rapid return on investment in all CRM subsegments."

Gartner did not divulge this information, but at current growth rates, SaaS should be a $2 billion segment of the CRM space by 2011.

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