Customer Relationship Management (CRM) is a model for managing and interactions with existing and future customers of a company. CRM software provides companies with a platform to organize, automate, and synchronize sales, marketing, customer service and technical support services to its clients. Globally, the enterprise software industry, which comprises various software suites such as Enterprise Resource Planning (ERP), CRM, Supply Chain Management (SCM) and Business Intelligence/Business Warehousing (BI/BW) is expected to climb to $326 billion in 2014, from its current level of $303 billion, according to Gartner. 
In this article, we look at various factors influencing growth of the CRM software market. We also shed light on the advantages of on-demand CRM offering over on-premise offering. Within the CRM software market, Salesforce.com (NYSE:CRM) overtook SAP AG (NYSE:SAP) to become the market leader in early 2013. 
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How Does A CRM Platform Work?
The advent of powerful analytical solutions that process enormous data sets to generate meaningful insights has been a strong driver to the growth in the CRM industry. A CRM software platform typically generates sales and marketing leads by using existing customer buying preference data in B2B and B2C transactions. These leads help the business in identifying potential sources of additional revenue through targeted marketing campaigns for specific customer bases or cost-cutting options by identifying failed campaigns still in operation.
In addition to providing these leads, other services such as real-time customer service and opportunity management, which includes better demand forecast modeling techniques, are also offered in a typical CRM suite. In recent years, CRM vendors have seen their revenues grow many-fold due to rising demand from small enterprise businesses. Deploying a CRM suite within a small business platforms helps the company stay in touch with its customer base on a real-time basis and providing key service offerings immediately. Instant response from business professionals helps the company increase its publicity through social media platforms as well as word-of-mouth publicity from its customers. This helps them build a much needed brand image around their company.
Going forward, we continue to expect small and medium enterprises to leverage the real-time capabilities of a CRM platform to stay in touch with their customers. However, an acceleration in growth in this market is expected to result from an increase in large enterprise adoption of these suites, which we explain below.
Future Industry Growth To Be Accelerated By Large Enterprise Adoption Of SaaS CRM Solutions
Globally, the CRM market has witnessed explosive growth, supported by alignment of software with small business customers. Salesforce capitalized on the absence of pure-play SaaS providers within the CRM industry through its Sales cloud and Service cloud offerings and gained first mover advantage in the SaaS arena. The company later launched a Platform-as-a-Service (PaaS) service to allow developers to create add-on applications that seamlessly integrate into the company’s existing cloud offerings. Salesforce’s Software-as-a-Service (SaaS) model resonated very well with small and medium enterprises, which lack dedicated hardware budgets to complement on-premise CRM bundles, while large enterprises continued to stay away from leaner SaaS models due to the risk of data infringement associated with it. Having the required scale, they have tended to favor on-premise alternatives offered by Oracle, SAP and others.
However, the recent years have seen a convergence of sorts between SaaS CRM deployments and on-premise deployments from large enterprises, which are beginning to opt for a SaaS model, as continued weakness in the global IT environment has weighed down corporate profits. Enterprises reduce their spend on software as the SaaS deployment model is based on a subscription fee. Additionally, SaaS provisioning eliminates hardware expense as the solution provider utilizes its hardware in analyzing and providing insights.
Going forward, we expect accelerated growth in the CRM software market globally due to rising adoption by large and smaller enterprises. Technology research firm Gartner recently updated its forecast for the CRM market from $21 billion to $37 billion by 2017. The report also points out that the CRM industry is witnessing growth faster than forecast, which indicates the immense opportunity that companies such as Salesforce, SAP, Microsoft and Oracle have in this market. Notes:
- Forecast: Enterprise Software Markets, Worldwide, 2010-2017, 4Q13 Update, Gartner, December 2013 [↩]
- Gartner Says Worldwide Customer Relationship Management Software Market Grew 12.5 Percent in 2012, Gartner Press Release, April 2013 [↩]
- Gartner Predicts CRM Will Be A $36B Market By 2017, Yahoo Small Business Advisor, June 2013 [↩]