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ARC sees global CRM to top $6.75 billion, despite economy

Dedham, MA  July 24, 2002  The global customer relationship management (CRM) market suffered a sharp downturn with the extended depressed economic markets and terrorist attacks of September 11. As a result, the CRM software and services markets fell to $6.75 billion in 2001. Despite the economic downturn, the dynamic CRM market will rebound over the next five years and grow to $10.4 billion by 2006 on a cumulative average growth rate (CAGR) of 9.1 percent, according to a new study by the ARC Advisory Group.

ARC CRM Analyst, Steve Clouther, the author of ARC's CRM Software & Services Worldwide Outlook market study, said the strong CRM market growth in the late 1990s was fueled by the overwhelming success the ERP [enterprise resource planning] market experienced with Y2K. He explained that the companies with a customer-centric strategy recognized the financial benefits of having a comprehensive CRM solution that integrated with the back-office operations.

However, the global economies and the fear of humongous CRM implementation  which can be costly and time consuming  caused the CRM market to slow in 2000 and then actually decline in 2001. "Over the past two years, the revenues from the CRM related services, especially maintenance, has kept many of the suppliers afloat. The concept of modular applications, integration to other applications, demonstrable ROI [return on investment], vertical industry solutions, the extended enterprise and e-collaboration, coupled with fast-track implementations, will be key elements in the recovery," he said.

The CRM Software & Services Worldwide Outlook market study defines CRM as a solution for identifying, attracting, developing and retaining customers to generate sustainable and profitable growth. CRM completely supports the customer relationship lifecycle with applications for marketing automation, sales force automation, customer support automation and knowledge management.

According to the report, in 2001 CRM services accounted for 55 percent of total CRM revenues across all industries. Of the service revenues, maintenance represented the lion's share, with 50 percent, and for many suppliers it was in the 60 to 70 percent range. Many of the larger CRM suppliers started breaking out maintenance as a separate line item in their financial reporting, and some suppliers attempted to classify the maintenance service revenues with product revenues. "The ever growing, installed user base and ever changing technologies and architectures will continue to make maintenance a very vital element of the future revenues," said Clouther.

The impact from the downturn of the global economies was felt around the world by all of the CRM suppliers. The events of September 11, 2001 represented the coup de grace for many, as they wrote off millions of dollars  sometimes even billions  in restructuring costs associated with closing facilities and terminating employees.

While the global economies are still struggling to recover, the CRM market bottomed-out in 2001 and is now recovering, albeit slowly. The ARC report suggested that by taking a page from their own book and thinking CRM along with new and concise strategies, the CRM suppliers can ride the wave of recovery and its 9.1 percent CAGR over the next five years.

Because of the importance of ROI in today's stressed markets, ARC said the suppliers of CRM solutions need to understand that the users want programs, processes, and industry specific applications that help realize real and identifiable return on investment.

On January 1, 2002, the Euro became the official currency in 31 countries, states and territories, and a further 22 peg their own currency to it. Sixteen more may join in the next few years. The CRM suppliers need to recognize the importance of this and deliver pan-European solutions.

Additional information on this study can be found at