CRM SaaS Industry Trends
CRM Software-as-a-Service (SaaS) in nothing short of a disruptive innovation within the business software market. We first review the SaaS industry's short history in order to project a continued path for this rapid market evolvement.
By most accounts, the start of the SaaS business model spawned from the Application Service Providers (ASPs). Small startups such as Corio, Digex and USInternetworking would eventually become well funded, well known and well equipped with some of the most impressive data centers in the business. There quick life cycle from Wall street darlings to dot com bombs was indicative of a good idea without the execution capabilities to bring the idea to market.
The SaaS model has built upon and advanced the ASP model in several ways. While Internet delivery is largely unchanged, the migration to a utility pricing model, or at least a subscription pricing model, was needed to remove buyer risk and reinforce the on-demand message. Another significant advancement was the change in SaaS software applications themselves. When the ASPs started, there were no Web-native, browser-based, thin-client CRM and ERP systems. The ASPs were forced to host traditional client/server and fat client business applications which were never intended for browser access, limited bandwidth or remote and accelerated implementations. SaaS began to excel when pioneering startup organizations designed their software programs for the SaaS delivery model and their businesses for the subscription pricing model.
What's next? It's anybody's guess. Those traditional (largely client/server) vendors who choose to capitalize on the SaaS momentum with little more than marketing propaganda will provide continued inroads for the startups who deliver legitimate SaaS solutions and provide their customers the true SaaS value proposition. It appears doubtful that anything other than Web-native, thin-client solutions delivered with a utility or subscription-based pricing model will advance with the SaaS evolution.
SaaS Growth Trends
According to CRM analyst Liz Herbert of Forrester Research, "In a year in which on-premise CRM sales remained flat, hosted sales applications compounded their already high growth." In the below diagram, analyst firm IDC predicts these trends will continue through at least 2009.
An IDC study shows worldwide spending on SaaS reached $4.2 billion in 2004, a 39 percent increase over 2003. That growth will continue over the next five years and reach $10.7 billion in 2009. Buyers from small and medium-sized businesses and divisions of larger companies are leading the charge as the most frequent SaaS adapters, according to Erin Traudt, SaaS research analyst at IDC.
In a more focused study by AMI Partners which reviewed only U.S. SMBs, author and AMI vice president of SMB insights and business solutions Laurie McCabe says SaaS demand will grow at a 40 percent CAGR over the next four years.
In a mid-2005 research release, analyst firm AMR Research projected that 40 percent of companies are using hosted CRM applications. AMR Researches then challenged the assumption that SMBs are responsible for the vast majority of hosted applications, citing 28 percent of large companies (over 5,000 employees), 39 percent of middle market companies (1,000 to 4,999 employees) and 41 percent of SMB business have planned deployments over the next 12 months. The study went on to say that hosted sales force automation (SFA) is actually more prevalent among larger organizations (31 percent) than SMB companies (22 percent). "In the past, hosted CRM has been considered prevalent mostly in the SMB market." said Rob Bois, senior research analyst at AMR Research. "Our research shows that companies of all sizes are now using hosted applications as revenue generation becomes a top priority. This, coupled with shorter implementation times, makes the hosted model very attractive."
The IDC diagram below further illustrates the total market among the three primary market delivery models.
SaaS SMB Growth
In a 2005 AMI-Partners market research report titled "Software-as-Services: Moving On Demand To In Demand With SMBs", author Laurie McCabe predicts worldwide spending by SMB companies (those with 200 or fewer employees) for SAS applications will increase more than 40 percent between 2004 and 2009 to reach $2.4 billion.
SaaS adoption and positive endorsement is not only increasing at an exponential rate, but is increasing in an almost linear or stepping stone fashion by customer segment - from small business adopters to middle market and larger enterprise organizations. CRMLandmark is gathering member volunteers to commence a research project to further understand the the specific variables and causes - at each customer segment - which contribute to the SaaS growth momentum. We intend to use this research as the basis to understand the market growth trend at much more detailed levels.