ARC Sees Global CRM to Top $6.75B Despite Economy - Forecast Rebound with 9.1% Annual Growth -.

Business/Technology Editors

The global Customer Relationship Management (CRM) market suffered a sharp down-turn with the extended depressed economic markets and terrorist attacks of September 11th. 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.

"The strong CRM market growth in the late 90's was fueled by the overwhelming success the ERP market experienced with Y2K. 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 - 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, vertical industry solutions, the extended enterprise and e-collaboration, coupled with fast-track implementations, will be key elements in the recovery," according to ARC CRM Analyst, Steve Clouther ([e-mail]), the author of ARC's CRM Software & Services Worldwide Outlook market study.

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.

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 vendors it was in the 60 -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.

Impact of Global Economic Conditions

The impact from the downturn of the global economies was felt around the world by all of the CRM vendors. 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. By taking a page from their own book and thinking Customer Relationship Management 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, the vendors of CRM solutions need to understand that the users want programs, processes, and industry specific applications that help realize real and identifiable ROI.

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. 16 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: http://www.arcweb.com/arcweb/advisory/Studies/EBus/crm.asp

Note to Editors: This document can be used with attribution to ARC Advisory Group. For a graphic containing `The CRM Market in Billions of Dollars' please contact Maryanne Flynn at mailto:[e-mail].

ARC Advisory Group provides strategic planning and technology assessment services to leading manufacturing companies, utilities, and global logistics providers, as well as to software and solution suppliers worldwide. From Global 1000 companies to small start-up firms, ARC has the strategic knowledge needed to succeed in today's technology driven economy. Further information can be obtained from ARC, Three Allied Drive, Dedham, MA 02026, 781-471-1000, Fax [phone], E-mail [e-mail], Web ARCweb.com.