Throughout the economic downturn of recent years, many lessons were learned by those businesses that survived. The most depressing one for the IT industry and the channel was how not to spend.
Since the middle of last year, though, the purse strings have been loosened and businesses are looking to technology again for that competitive edge. The other key lesson the lean years taught businesses was the true value of customers and, more importantly, the value of good customer relations.
As a result, CRM solutions have been growing in popularity. New players and solutions have arrived that take CRM out of the enterprises and down into the mid-market and SME space for the first time.
CRM, like many other sectors, took a beating over the past few years. According to Gartner, CRM hit rock bottom in 2002. Worldwide CRM new-licence revenue totalled $2.8bn in 2002, a 24.7 per cent decline from 2001 revenue of $3.7bn.
The marketplace steadied somewhat in the latter half of 2003 and Gartner is predicting that CRM application revenue will rise by one per cent in 2004 to $2.4bn worldwide.
Research firm Forrester is equally cautious, claiming that licence revenue in 2003 was down by 20 per cent on 2002 and that for 2004, even though things are improving, CRM revenues will stay flat.
AMR Research is the most optimistic of the bunch, predicting that worldwide CRM spending will hit $10.8bn in 2004, representing a $1bn increase compared with 2003.
So while there is some clash over the recovery rate of the CRM sector, reports from the front line indicate that business is good, and getting better.
"The market is very good at the moment," says Anita Clifford, director of ETC Global Solutions, which supplies Microsoft and Sage CRM solutions. "Interest in solutions is building a lot now, as the market bounces back. It is a different market to the one of 18 months ago."
Daniel Hong, analyst at market watcher Datamonitor, says: "The market is certainly recovering. Towards the second half of last year, IT spending freed up and now enterprises are making some clever investments in CRM solutions. There's a lot of opportunities in the CRM space now."
So, what's it all about? CRM can be defined as any practices, strategies, software, or web-based facilities that help a business organise and manage customer relationships. Implementing a CRM solution means taking customer relationships from the support desk and making it the priority of everyone in the company.
Effective gathering and sharing of the customer information gathered by support, marketing and sales staff is at the heart of any successful CRM implementation.
Knowledge without application is a waste of resources, which is why the best CRM implementations use all that information to up-sell and cross-sell to their existing customers.
Return on investment (ROI) is the mantra of modern businesses, which is why CRM vendors have been working hard to make the ROI easier to see. According to IDC, it is working.
Earlier this year, IDC completed an ROI study relating to successful CRM implementations and found they have yielded returns ranging from 16 per cent to more than 1,000 per cent. Over half of the companies surveyed yielded returns of between 50 per cent and 500 per cent.
The bulk of those returns were seen in increased productivity and business process enhancements.
Report author Mary Wardley, vice-president of IDC's CRM applications research, says: "The impact on an organisation can at times be subtle and distributed throughout the enterprise.
"Cost savings and productivity enhancements can be seen in saving a sales person 20 minutes per week in writing activity reports, or answering four times the volume of web-based service requests in the same amount of time."
Roger Cole, CRM consultant at reseller CPiO, says: "The big benefit of CRM is the visibility of everything relating to customers going on in your company. If you want to provide a better service to your customer, you have to be able to manage everything from complaints to sales opportunities.
"CRM almost makes everyone in your organisation a sales person, since they are selling your business in one way or another. For instance, customers often say things to support staff which could be used as a sales opportunity.
"The support person might not know it but because the information is recorded, a sales person can see it and use it to follow up on. Just the recording of the information has many benefits for other departments."
Hong adds: "This new customer-focus approach to business has evolved in the past few years, because retaining the customer is cheaper than acquiring a new one.
"Some businesses are trying to turn their call centres - traditionally cost centres - into profit centres by up-selling and cross-selling."
So, who are the CRM customers these days? It used to be simple: big companies with big wallets. The terms 'CRM' and 'cheap' have rarely been used in the same sentence, unless you put the word 'not' between them.
However, things started to change when enterprises closed their coffers in the economic downturn and focused on critical applications only. After all, CRM software may have its benefits, but it is not exactly mission-critical.
When enterprises stopped buying, new markets had to be found, lower down the food chain. In recent years there have been a growing number of mid-market solutions from the key players, and even SMEs are receiving some attention.
Axel Lagerborg, head of software and licensing at Ingram Micro, says: "Many companies couldn't afford CRM in the past; it was the preserve of the enterprise.
"All of that is changing now. As in any developed market, vendors have to look at small firms too. All-sized companies need some form of CRM, and vendors are trying to get their price points down."
Cole adds: "Mid-market and smaller companies are investigating what they have been missing out on. There is now a tidal wave of interest from these firms, as companies scale down their offerings and price points fall significantly."
Two things that have helped reinvigorate the CRM sector more than anything else have been the arrival of Microsoft into the fray and the rise of hosted CRM solutions.
Microsoft entered the CRM market with its own mid-market offering - Business Solutions CRM - earlier this year. The effect has been the equivalent of dropping a bomb in a small pond.
As in most markets Microsoft enters, the impact can be felt on a number of fronts. The existing heavy hitters, such as Siebel, SAP, Oracle and PeopleSoft, are all too aware of Microsoft's advantages, not least that most businesses around the globe run their operations on Microsoft software.
The company is also coming to the table with a product that, so far, has been reasonably well received by the technical community. Despite some grumbling over lack of functionality, the product is well-pitched for those looking for an affordable CRM solution.
Typically, Microsoft has entered the arena with aggressive marketing and pricing, with a dizzying array of discount schemes for companies that already use Microsoft products. In June, Microsoft really started turning the screws by offering an attractive SME bundle through the UK channel.
Those that buy or upgrade to Windows Small Business Server 2003 Premium Edition before September get up to 80 per cent off the cost of a five-user licence for Business Solutions CRM 1.2 Sales Standard Edition.
This is just one of a myriad of ways of getting the CRM product, and every channel is being exploited to build a customer base - fast. Microsoft is already appealing to the masses, and the predictions for its success in the CRM space are already staggeringly positive.
"We think Microsoft will become a very important player in the CRM market," says Jim Davies, research analyst at Gartner. "We estimate it will be one of the top five providers in the next two years."
Hong says: "Microsoft is ramping up fast. It's typical of Microsoft to wait for a market to show signs of maturity and then jump in, using a lot of aggressive pricing to increase market penetration. Microsoft is on everyone's radar."
Clifford says the arrival of Microsoft has helped the CRM market. "Whenever a company that big launches into a new market, it creates interest. You could go as far as to say that it has helped revitalise the CRM market in the UK.
"This marketplace needed a higher profile. There are a lot of businesses out there that did not know about CRM, but because they use Microsoft products, they are showing interest in CRM solutions," she says.
"Microsoft's arrival has had a two-fold impact," says Lagerborg. "It is delivering what it believes is a cost-effective CRM solution; it is a master of this kind of market entry.
"Also, although smaller CRM players have great products, they do not have the brand recognition of Microsoft. Its entry is having a positive effect on the CRM market as a whole."
The other route open to mid-sized firms and SMEs is the hosted CRM approach, championed by firms such as Salesforce.com, Salesnet and Rightnow Technologies, among others. Even traditional players such as Siebel are in on the act, teaming up with IBM to offer its CRM OnDemand solution.
Hosted CRM is seen as a cheaper way to get into CRM, because the up-front costs are virtually nothing and the cost is based on a pay-as-you-go model. Compared to the high up-front costs of internal CRM solutions, hosted CRM is attractive and is taking off quickly.
At the start of 2003, researchers at Aberdeen Group found that just over half of respondents said they would consider using hosted CRM solutions. By September 2003, 35 per cent of respondents said they already used hosted CRM and 85 per cent were planning to evaluate it.
Cole says: "Hosted CRM is a cheap way into CRM, initially. There are no purchase, installation or in-depth training costs. SMEs are the big target for hosted CRM providers. Many smaller firms do not have the budget or the IT skills for an internal CRM solution. Hosted CRM will suit companies with 20 people.
"That said, hosted CRM is cheaper at the start, but not as time goes on. The high initial cost of internal CRM software is cancelled out by the ongoing costs of having your CRM solution hosted and updated."
Clifford agrees that hosted CRM has advantages at the start but that the situation changes.
"If a customer looks at the long-term ROI then a different picture appears. It always looks as if there is a quick ROI with hosted CRM, especially with the low initial investment, but look a few years down the line and you'll find the costs balance out quickly," she says.
Even Gartner, which believes that hosted CRM is a rapidly growing part of the CRM sector, claims there are hidden costs. Even so, there is a lot to be said for a solution, like that from Saleforce.com, that offers businesses free trials - something unheard of in the traditional CRM world.
The channel should not expect the rise of hosted solutions to succeed solely at the expense of internal CRM solutions, but it should expect to lose some business. Like the arrival of Microsoft, hosted CRM is expected to create a largely new base of customers that didn't know about or couldn't afford CRM software.
In fact, the role of the channel is becoming even more important as vendors launch more offerings targeting smaller businesses. Considering all of the extras that can be bolted onto a CRM solution, it can be a lucrative market for the right reseller. Just don't expect any real short-term gains.
Clifford says: "The channel is very important in the CRM space because we have the business contacts. Also, there's no really quick CRM sale. The average time it takes to secure a sale is three to six months.
"Customers need a lot of help and to SMEs, it's a lot of money. They need convincing that what they are getting matches their needs."
Cole adds: "You could be talking to customers for months, or even years, before they will buy. CRM is not mission-critical, so it can be put off. CRM resellers have to be in it for the long haul and be able to clearly outline the real-life benefits, be it reducing customer complaints or creating sales opportunities."
While the overall market is healthy, the value-add side is not as good as it was in the past. "A lot of the work now has to happen pre-sale. Because of all the competition customers want all they can get for nothing. I am spending a lot more time in a pre-sales environment than in a post-sales one," Cole says.
While the CRM market is a good one to be in, it is not for those looking for a quick score. Apart from the skills needed to implement a CRM system that integrates with existing customer information sources, you need patience.
The rewards are extended business, as CRM solutions often need customising or upgrades to deal with new customer needs.
CPiO (01675) 467 046
Datamonitor (020) 7675 7000
ETC Global Solutions (01494) 720 600
Gartner (01784) 431611
Ingram Micro (0870) 166 0160
Security firm set to become part of acquisitive Shearwater Group
Distributor merges three northern sites into one new hub in Warrington
Activist investor puts forward five director candidates as turmoil continues at security giant
Nima Green asks what is driving public cloud uptake in Germany