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Study: Business software to surge

A new study predicts the front office software market will reach $11.5 billion in the next four years, up from $1.2 billion last year.

    Corporations are spending their information technology dollars up front.

    A new study by AMR Research in Boston predicts the front office software market will reach $11.5 billion in the next four years, up from $1.2 billion last year.

    The software is used to manage marketing, sales force, and customer service departments.

    "As the market continues to realize the strategic advantages, importance, and revenue-generating ability of [customer relationship management] applications, market penetration will dramatically increase," said Peggy Menconi, analyst at AMR Research. "CRM is quickly becoming one of the hottest areas in enterprise applications and will continue to spur significant mergers and acquisitions."

    Right now, the dominant players consist of such names as Siebel Systems and Vantive. Meanwhile, mergers and acquisitions are already shaking out the market.

    Siebel bought Scopus this year to add call-center functionality to its lineup. Vantive bought Innovative Computer Concepts more than a year ago for functionality that helps manage spare parts inventory in field operations. Aurum Software joined Baan, putting a top enterprise application vendor in its corner. Baan also put its freshly acquired configuration software maker Beologic under Aurum's control.

    But the shakeout will not deter growth in the market. AMR Research predicts the market will grow at a rate of 58 percent over the next five years. License revenue alone will top $7.5 billion by 2002, compared to $762 million in 1997.

    So far, the growth has been driven by North American Fortune 500 firms, which made up 77 percent of the $1.2 billion market last year. Companies with revenue over $1 billion made up 43 percent of the sales.

    "While growth rates outside North America are good, CRM revenue is still miniscule when compared to other enterprise application markets such as ERP," Menconi said. "This indicates that there is plenty of market to be tapped."

    Such figures and the room for growth are driving the ERP vendors like SAP, Oracle, and Baan to pump massive amounts of capital and development resources into building these products for themselves.

    As the business application vendors continue to expand their reach into the front office, AMR Research predicts that "the leading [ERP] vendors will offer complete CRM suites by 2000." SAP and company will also push this type of functionality into relatively untapped markets like manufacturing where the enterprise application vendors are strongest.

    But the ERP push will also serve to raise awareness of the market, opening up new opportunities for the niche vendors like Siebel and Vantive as they ride the huge coattails of SAP's marketing machine.