Analysts See Growth Spurt In CRM Application Hosting

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September 09, 2003 (11:18 AM EDT)

Analysts See Growth Spurt In CRM Application Hosting

Having survived the dot.com collapse, Web-based CRM (Customer Relationship Management) application hosting is poised for expansion and a larger piece of enterprise CRM spending, research firm Aberdeen Group said Tuesday.

Though still much smaller than the $13.5 billion licensed software application CRM industry, the hosted CRM business is experiencing a growth spurt. That spending surge will take the market from less than $100 million a year in revenue in 2001 to the $2 billion annual range by 2006, Aberdeen estimates.

The current positive climate can be traced to several factors, said Aberdeen analyst Denis Pombriant.

"The lower cost acquisition, implementation and maintenance, as well as lower costs of some aspects of training have been seen as large enterprise opportunities during tight times," Pombriant said.

Additionally, the fact of the field's survival as other online approaches to enterprise services failed has lent hosted CRM a certain inertia. According to Pombriant, many of the major enterprise objections to hosted applications, such as guaranteed uptime and availability, have now been addressed and in some cases answered.

Other enterprise concerns, including inability to customize applications, and worries about third-party storage and management of critical enterprise data have become, less showstoppers or deal-breakers than selling objections for the vendors to overcome.

The analyst also singled out CRM hosting company Salesforce.com. More than others, it "got the attention of the industry," Pombriant said.

Nor did it hurt CRM hosted application vendors that major licensed software players in the field, including SAP, Siebel and PeopleSoft did little to respond to competition from hosted application companies. For most of the history of the sector, Pombriant observed, the major players didn't see application hosting as even a minor challenge.

"That may be changing," Pombriant said, "particularly as hosted application numbers start taking a bite out of application license spending."

Cost-effectiveness will remain the prime driver for hosted CRM application growth, the analyst said in his report, "Hosted CRM Popularity Continues to Grow."