Opportunities for partners in the on-demand CRM market 5 February, 2007 By Chris Talbot

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New CRM SaaS players not only have to handle the classic start-up risks, but also financial risks and competitive challenges from providers firmly entrenched in the market.

"Based on T1R's analysis, the estimated market size for the CRM software segment was $9.5 billion (U.S.) in 2006, with 6.3 per cent of the total market represented by SaaS deployments," said Michael Mankowski, senior analyst at Tier 1 Research and lead author of the report, in a statement. "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."

Currently, there are more than 150 on-demand CRM providers around the world. According to Tier1, CRM is a starting point for many on-demand vendors, even though there are many barriers to entry.

"SaaS has established itself as a viable business model with CRM on-demand, but larger companies cannot rest on their laurels. Larger on-demand CRM providers face a challenge of remaining nimble, and they need to build out additional functionality for continued success as they compete with smaller SaaS providers," Mankowski said.

Tier1 found that 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. Getting a positive cash flow is a challenge since the costs associated with building a multi-tenant environment are significant. Additionally, it's not uncommon to have a long time between start-up and breaking even because of the costs of goods gold and indirect customer acquisition costs.

The 20-page report, "SaaS Report Series: Perspectives on CRM," provides analysis on where the on-demand CRM market is going, including what opportunities exist for established players and the risks and challenges facing start-ups.