According to a new Forrester Research (Nasdaq: FORR) report, the days of unfettered CRM growth are over. After a drop of 5.4 percent in 2002, the CRM market will experience a modest compound annual growth rate of 11.5 percent from 2002 to 2007. During this period, factors that will reshape the market include: cross-channel integration, vendor verticalization, Web services, and a shift in application pricing models. Forrester also predicts that firms will shift their focus from the technical elements of channel integration to process redesign efforts focused on improving customer experience.

Some key findings from the July report CRM’s Future: Humble Growth Through 2007 by Forrester Principal Analyst Bob Chatham:

  • Professional service firms and outsourcers comprise more than half of the total CRM market. Growth at consulting firms will drive the CRM services segment to $41.9 billion in 2007.
  • The CRM apps category will regain its footing from 2002’s loss as annual growth jumps from 6.8 percent in 2003 to 14.0 percent in 2004 — this expansion will taper to 12.5 percent by 2007.
  • Dragged down by a slowdown in Internet commerce software, customer-facing channel apps will experience the slowest annual growth rate in the CRM market — 7.3 percent over the next five years.
  • Marketing automation apps will represent the fastest-growing CRM segment. While growth between 2002 and 2004 will hover around 14.5 percent, the segment will expand at a 17 percent rate thereafter — reaching $928 million in 2007.

CRM Prepares For The Next Wave
Global 3,500 companies, firms with revenues of $1 billion or more, will eventually extract value from their CRM investments by evolving through three phases of maturity:

  • Phase 1: Channel integration. Firms currently struggle with cleaning and synchronizing data and leading customers to the best channel for a transaction. In this ongoing phase, firms will build common data models, define initial process flows, and cleanse and synchronize customer data across offline and online channels.
  • Phase 2: Process redesign. Global 3,500 companies will face the tough task of changing employee and customer behavior to match revised business rules and process flows. They will accomplish this by adjusting incentives across organizations for delivering coherent customer experience, tracking customer behavior and cost across channels, and establishing channel migration incentives.
  • Phase 3: Continuous optimization. Firms that reach the third phase will view their business as a constantly updated portfolio of products and customers. Smart companies will continuously tune their channel and customer mix by adjusting products and services, driving microsegmentation with analytics, and adjusting customer interactions based on lifetime value.

The model underlying this forecast was created based on 2001 revenue data for 447 CRM-related software, service, and infrastructure vendors. This revenue data came from several sources: 1) public filings; 2) OneSource Information Service (used for private company data); 3) briefings with Forrester analysts; and 4) an online survey of 49 vendors.

The companies were grouped into 10 market segments, which roll up to three major categories:

  • Applications. Software licenses, maintenance, and services by application vendors. Subcategories include marketing automation, CRM suites, analytics, customer channel management, and field force automation.
  • Services. Outsourced business process and professional services related to contacts and data. Subcategories include contact center outsourcing, consulting, and marketing services.
  • Infrastructure. Integration and routing technology for contacts and data. Subcategories include data integration and contact center infrastructure.