Overview: After years of continuous upswing, CRM revenue growth came to a halt in Q4 2000. After tracking five quarters of CRM decline, Aberdeen is now cautiously optimistic for a sector recovery. Although lower IT spending levels have affected revenues in the entire CRM sector, major suppliers — including Siebel Systems — as well as niche pure-play firms have been able to keep profitability and positive net income. This Aberdeen InSight identifies the emergence of new suppliers and product categories and the resumption of overall IT spending growth, which Aberdeen forecasts for later in 2002, as indicators of what could be a trend inversion for the CRM sector.
In 2001 worldwide IT spending grew at a mere 0.21%, and U.S. IT spending declined 0.37%. The past 18 months have been a difficult time for many IT-related sectors, including CRM. This negative trend started in Q1 2001 and has extended into 2002: Suppliers’ earnings announcements show that Q1 2002 CRM revenues declined 15.9% over the same period last year.
Selecting a sample of 34 suppliers as a benchmark group — which, in aggregate, account for more than 60% of the CRM market’s revenues — Aberdeen has measured revenues on a quarterly basis. Note: This sample does not include Peregrine Systems, due to the uncertainties surrounding Peregrine’s reported revenues for 2000 and 2001.
Aberdeen’s benchmark group reported revenues of $1,107 million in Q1 2002 against revenues of $1,205 million in Q4 2001 and $1,316 million in Q1 2001, representing a decline of 8.1% and 15.9%, respectively. As a whole, these 34 suppliers lost $208.7 million in revenues during the past year.
This decline is in line with the predictions contained in Aberdeen’s research report, Technology Forecasting Consortium: 2002 User Buying Intentions (February 2002). In this report, Aberdeen noted that our analysis of 150 user surveys indicated that enterprise application software was a low purchasing priority compared to other initiatives such as security, backup, and Enterprise Application Integration (EAI) tools.
Moreover, Aberdeen’s IT spending model does not predict a strong upswing before Q2 2002, and more likely, the second half of the year. Current IT priorities are focused on preserving and extending existing IT assets, rather than funding brand new initiatives. The CRM market is in alignment with these overall IT trends and, as a result, is not a leading indicator of IT spending or economic recovery.
Three companies in the benchmark group — BroadVision, Siebel Systems, and Vignette — had a major impact on the overall revenue decline of $208.7 million.
On a more positive note, from a revenue perspective, a handful of companies were able to preserve or increase their revenue streams. Three companies in this select group include Chordiant, Kana Software, and Digital River.
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As a group, the 34 benchmark companies reported a combined net income (loss) of ($13.9 million). However, through cost containment, several were able to generate respectable profits. For example, Siebel reported a net income of $64.6 million.
Glimmers of Hope
Aberdeen research indicates that there are some bright spots. The first is that Aberdeen predicts a modest IT spending recovery later this year, which should have a positive impact on CRM revenues.
Second, Aberdeen is tracking several emerging subsegments within CRM that have potential for rapid growth. Three of note are Automated Sales and Marketing Methods, Customer Voice Management, and Transaction-Enabled Offers. It is important to bear in mind, however, that these areas are currently only a small fraction of the overall CRM sector, and thus their near-term total revenue contribution is limited.
The market numbers and user survey data gathered by Aberdeen indicate that CRM is highly unlikely to lead IT spending out of its current doldrums. Rather, CRM suppliers have their work cut out for them in obtaining new business. Of high priority for suppliers should be a demonstration of documented return on investment (ROI) that can be repeated in new implementations. Users must feel confident that a CRM solution will result in near-term payback before they sign purchase orders.
However, Aberdeen is cautiously optimistic for a CRM recovery. Although a return to the days of 40% to 50% annual growth is not expected, there are some indications that CRM growth will resume. Aberdeen’s optimism is based on the following three factors:
A more in-depth examination of the CRM market by sector, geography, and vertical market, as well as future revenue forecasts will be forthcoming in Aberdeen’s forthcoming research report, Worldwide CRM Spending: Forecast and Analysis, which will be published in June. For more information, call (800) 577-7891 or e-mail [email protected] to obtain an advance copy.
Hugh Bishop is senior vice president at Aberdeen Group in Boston. Esme Fantozzi is a senior research associate with Aberdeen’s Emerging Technologies Intelligence group. For more information go to www.Aberdeen.com.