Big changes are coming to the CRM (customer relationship management) application market this year, with significant financial, strategic and technical implications for customers, say analysts who track the space.

Large vendors like SAP and Oracle are "pushing hard" for customers to upgrade their CRM applications this year, said Forrester Research analyst William Band. "This is forcing a lot of organizations to make a decision."

Customers who do wish to proceed with an upgrade will have a tougher time getting approval than in the past, given the chill the economy has placed on all IT spending.

Therefore, customers must prepare a more stringent business case for CRM -- something that didn't necessarily happen much in the market's earlier days, according to Band.

"In the late 90s, early 2000s, the CRM space was very buoyant. A lot of people bought into the Tom Siebel vision," Band said, referring to the former CEO and chairman of Siebel Systems, which has since been acquired by Oracle. "They invested in more of a promise than some really good due diligence."

Companies may also need to work on other technical fronts this year to gain the most benefit from their CRM implementation, Band wrote in a recent report.

"Due to multiple instances of software, disparate enterprise resource planning (ERP) systems, and poor data integration," CRM applications can end up providing "a fragmented view of the customer," he wrote. Forrester expects that this year, "CRM professionals will continue to focus intently on how enterprises collect, distribute, and use data."

In terms of CRM product functionality, look for last year's trend toward "social CRM" -- marked by collaboration tools like wikis and blogs within the CRM experience -- to morph into "cloud CRM," wherein CRM applications connect to external social-networking sites like Facebook or LinkedIn, as well as other Web sources, according to 451 Group analyst China Martens.

CRM vendors will also try to boost customer retention by adding new features, Martens said. This need is pressing in the CRM space, where products' core capabilities don't vary much. Salesforce has already made this type of move, introducing a product for content management, for instance.

CRM applications will also become more modular, according to Martens.

"Oracle has started down this path already and many of its peers are looking to emulate its example," she said, referring to last year's release of three Oracle SaaS CRM products -- Sales Prospector, Sales Campaigns and Sales Library -- as well as its CRM Gadgets.

Martens is expecting that customers will demand more clarity on pricing from vendors, especially ones with SaaS (software as a service) products. Vendors will also experiment with unique pricing models, such as connecting the application's cost with a customer's profitability, and more companies may go with open-source products like SugarCRM in an effort to reduce costs, she predicted.

Price cuts could also be on order from the likes of NetSuite and Salesforce, but expect a number of skirmishes among rivals, rather than "an all-out pricing war," she said.

IDG News Service

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