European CRM Software Revenue Increased 9.7 Percent in 2005

Gartner: Amidst high levels of consolidation, European growth lags behind worldwide levels but individual countries show significant differences in growth. Fuelled by the renewed business focus on revenue and customer growth, total customer relationship management (CRM) software revenues (licence and maintenance) in Europe totaled $1.9 billion in 2005, an increase of 9.7 percent from 2004. While SAP and Oracle - following its acquisition of Siebel earlier this year - jointly held more than 50 percent of the total CRM software market, increasing adoption of on-demand solutions produced significant gains for SalesForce.com growing 86.4 percent in 2005. Microsoft, a recent entrant into the CRM market, experienced the fastest growth in Europe at 88.1 percent.

CRM market growth in Europe was lower than the 13.7 percent increase seen worldwide in 2005 and lower than the 15.1 percent seen in the region in 2004. However, Gartner highlighted several factors that contributed to this and stressed that despite the lower revenue growth, there is actually more CRM business in the market.

The picture in Europe is very fragmented. Our research shows that growth in spend on CRM software correlates strongly with economic growth measures such as gross domestic product (GDP). GDP growth in countries such as Italy and Germany remains lower than the rest of the world, while market growth in countries such as the UK, Sweden, Norway and Denmark has been more consistent with that in North America. This means we are seeing CRM growth rates ranging from a slight negative to more than 27 percent depending on the individual country.

Gartner also highlighted high levels of acquisitions in the CRM application market, significant price reductions and exchange rate fluctuations as major contributors to the seemingly more subdued levels of growth in 2005.

Acquisitions of major players such as Peoplesoft early in 2005 and Siebel this year by Oracle have played a key role in pushing prices down, . This encouraged more buyer activity with users ‘stocking up’ on CRM software. The net result is that we are seeing a return to more realistic and sustainable buying levels.

Table 1 Europe: CRM Total Software Revenue* Estimates for 2005 (Millions of U.S. Dollars)

Vendor	2004	2005	2004 Share	2005 Share	2005 Growth
SAP	553.9	628.5	31.4%	32.4%	13.5%
Siebel	290.6	312.1	16.5%	16.1%	7.4%
Oracle	140.3	121.6	7.9%	6.3%	-13.3%
SAS Institute	55.9	72.2	3.2%	3.7%	29.2%
Amdocs	61.2	65.0	3.5%	3.4%	6.1%
Other Vendors	664.8	738.3	38%	38%	11.1%
Total	1766.7	1937.7	100%	100%	9.7%

Source: Gartner Dataquest (July 2006) *includes licence and maintenance revenues.

SAP was the No. 1 CRM vendor in Europe based on total software revenue, with a 32.4 percent market share in 2005, up from 31.4 percent in 2004. Siebel was the second largest vendor, but was acquired by Oracle early in 2006. Oracle’s own CRM sales pipeline suffered while customers awaited affirmation of future product directions following its acquisition of Siebel. Because of the size of Oracle’s acquisition, Gartner predicts there will be a short term braking effect on CRM market growth. The fastest growing vendors in the European marketplace in 2005 were Microsoft and SalesForce.com.

The highest growth in CRM software could be seen in applications for marketing automation, which increased by 18.6 percent. This was followed by sales automation at 12.1 percent and customer service and support applications at 3.6 percent.

Businesses in Europe are focusing on new customer acquisition, expanding wallet share, process optimisation and business accountability, . This is resulting in higher demand for applications that drive revenue generation and enhance the customer experience. The functionality offered by marketing automation and analytics applications complements well the renewed focus on revenue and customer growth.

That businesses are becoming more realistic about what they can achieve with CRM and are making more mature investments above and beyond CRM software.

There is an increasing focus on getting the business process right and on concentrating on the areas of the business that stand to gain the most. This means businesses require assistance with integration or migration initiatives as well as process expertise. As a result of this more strategic approach to CRM, consulting and system integration providers are reaping greater rewards than the majority of the CRM application software vendors.

Gartner predicts continued high levels of acquisitions in the CRM software market through 2008, where one in three CRM software vendors will be involved in a merger or acquisition (M&A) each year. Despite this is not a shrinking market. This ferment of M&A activity will spark a burst of innovation in CRM application research and development from 2006 to 2010. Particularly in Europe, the market is still wide open for smaller, best of breed vendors. Additionally, both Salesforce.com and Microsoft have the resources and desire to gain scale and narrow the gap with SAP and Oracle going forward.

CRM software market Publ 20060726