CRM: Money can be made in the biz, but be careful

A Tier1 Research report entitled “SaaS Report Series: Perspectives on CRM” concludes that the market for on-demand CRM software is “booming and creating plenty of room for growth for the established players in this space.” Meanwhile, new entrants scratching for position in the on-demand software-as-a-service CRM business today face several barriers to entry, including classic startup risks, financial risk and competitive challenges from entrenched players.

T1R is a Minneapolis-based independent research firm that analyzes the financial and industry implications of developments affecting public and private companies within the IT, communications and internet sectors.

According to T1R senior analyst/report author Michael Makowski, "Based on T1R’s analysis, the estimated market size for the CRM software segment was $9.5 billion in 2006, with 6.3 percent of the total market represented by SaaS deployments. Even with the buzz in the market around SaaS, on-premises deployments rule the roost, and the lower-than-expected penetration is great news for established players.”

Makowski et al reckon that SaaS has established itself as a viable business model with CRM on-demand, but larger on-demand CRM providers face a challenge of “remaining nimble,” needing to build out additional functionality for continued success to compete with smaller SaaS providers."

The most insurmountable barriers to would-be players in the CRM market today are twofold:

• The challenge of leveraging the ability to be flexible and deliver unique value through software features and functionality that is not always available when working with the larger CRM providers.

• The challenge of getting to cash-flow positive, since the costs associated with building a multi-tenant environment are significant. It is not uncommon to have a long breakeven point in the early stages of the business, given the cost of goods sold and indirect customer acquisition costs.

“SaaS Report Series: Perspectives on CRM” seeks to provide analysis on where the on-demand CRM market is going. The report includes insights gathered from T1R’s proprietary ISV/SaaS database and examines the state of CRM on-demand and the needs of the small, medium and large customers.

The report covers more than 15 key public and private companies in the SaaS sector: Adobe, CDC Corp, Entellium, Google, Intel, Microsoft, NetSuite, Oracle, RightNow Technologies, Salesforce.com, SAP AG, Savvis, SugarCRM, WebEx and Yahoo.

To get a copy of the report, contact Lori Larson, Business Development Manager with Tier1 Research at lori@tier1research.com.

Founded in 2000, Tier1 Research is a division of The 451 Group and is headquartered in Minneapolis; in the words of PR, Tier1 “blends traditional Wall Street investment research with industry analysis to deliver dynamic market and financial intelligence.” T1R clients include institutional investors and technology vendors, along with end users and venture capitalists.