Global Headquarters: 5 Speen Street Framingham, MA USA P F

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1 Global Headquarters: 5 Speen Street Framingham, MA USA P F MARKET ANALYSIS Worldwide Marketing Automation Applications Forecast Robert Blumstein IDC OPINION IDC has updated the forecast for the marketing automation applications market for IDC now expects worldwide revenue to be $1.61 billion in 2004, a 7% increase over Marketing automation applications revenue is now forecast to increase to $2.01 billion by 2009, representing a 4.5% compound annual growth rate (CAGR) for the period. Highlights are as follows:! Marketing grew at a healthy rate through 2004 and is expected to show positive growth, although at a slowing rate, through the end of the forecast period.! Software as a service is making its presence felt in the growth of this market, as is the general acceptance of marketing analytics as a key to program improvements.! Vendors will continue to improve the integration of their software with other marketing and wider corporate functionality. Filing Information: March 2005, IDC #33113, Volume: 1, Tab: Markets Marketing and Sales Automation Applications: Market Analysis

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3 IN THIS STUDY This IDC study provides a top-down sizing of the marketing automation market in 2004 and a forecast for this market. Historical and forecast revenue data is shown for the total worldwide market. This study does not contain vendor-specific revenue, market shares, or vendor profiles, all of which will be published in a separate study in 2Q05. Methodology See the Learn More section for a description of the forecasting and analysis methodology employed in this study. In addition, please note the following:! The information contained in this study was derived from the IDC Software Market Forecaster database as of March 18, 2005.! All numbers in this document may not be exact due to rounding.! For more information on IDC's software definitions and methodology, see IDC's Software Taxonomy, 2005 (IDC #32884, February 2005). SITUATION OVERVIEW The Marketing Automation Market in 2004 Marketing automation grew significantly in 2004, with revenue reaching $1.61 billion, a strong 7% increase over This reflects the release of pent-up demand as budget dollars that had either been frozen or allocated to other areas of CRM over the previous two years were finally redirected into this sector. The increase in revenue also reflects the growing acceptance of software-as-a-service models that offer ease of implementation an attractant to marketers in general who sometimes feel hostage to IT departments as well as to small and medium-sized businesses in particular that have little or nothing in the way of IT departments as well as lower initial price barriers than many on-premise packages. A more detailed analysis of the marketing automation market in 2004, including vendor revenue and shares, will be published in 2Q IDC #

4 FUTURE OUTLOOK Forecast and Assumptions Marketing Automation Forecast, IDC's estimate of the growth of the marketing automation market through 2009 is presented in Table 1. The growth rate is expected to remain stable in 2005 and 2006 and then slowly decline through the rest of the forecast period. Marketing automation applications revenue is forecast to increase to $2.01 billion by 2009, representing a 4.5% CAGR for the period. Table 2 shows the key assumptions underlying this forecast. Note that assumptions with an asterisk indicate special relevancy to CRM. These key assumptions include the following:! The efficiency of understaffed marketing departments can all be improved. In addition to measuring productivity by results, productivity can be measured partly in terms of number of promotions, number of segments, and so on, and automation can multiply these numbers.! Functionality will become more standardized and will make the decision process more manageable. Analytics will also be more widely distributed within the organization.! Data integration and multichannel marketing will demand improvements in marketing software. IDC analysts around the globe supplied regional input and insight into the marketing automation market forecast. IDC will publish the revenue forecast for marketing automation, segmented by geographic region and operating environment, in 2Q05. TABLE 1 Worldwide Marketing Automation Applications Revenue, CAGR (%) Revenue ($M) 1,607 1,689 1,775 1,858 1,934 2, Growth (%) NA Note: See Table 2 for key forecast assumptions. Source: IDC, March # IDC

5 TABLE 2 Key Forecast Assumptions for the Worldwide Marketing Automation Applications Market, Market Force IDC Assumption Impact Accelerator/ Inhibitor/ Neutral Certainty of Assumption Macroeconomics Economy Worldwide economic growth will peak as the recovery runs its course. High. The economy is now a positive influence on IT spending. Unemployment/ job creation Unemployment worldwide will slowly drop, with the U.S. rate dropping under 5% by the end of Unemployment (and job creation) will be a much-watched indicator, with monthly results mixed. High. More employment drives more need for IT infrastructure and is a lagging indicator of economic recovery; job creation should be accompanied by a willingness to invest in other areas. Exchange rates Long term, there could be further declines tied to the U.S. trade imbalance and deficits. For 2005, IDC believes Asian banks will continue to invest in U.S. securities and keep the dollar from falling precipitously, although this is a significant risk factor because any reallocation of currency holdings by Asian countries would push up interest rates in the United States and choke off growth. We do expect the dollar to fall slightly in Moderate. A declining dollar makes U.S. IT products and software less expensive, but this will have a minor effect on regional growth because most U.S. companies sell via overseas subsidiaries that use local currency. Still, results get reported in dollars, and this measure will look unrealistically better. ####$ Stocks In 2004, the stock market remained essentially flat. In 2005, we expect the stock market to stay flat with possible oscillations. Oil price fluctuations and international politics will play a significant role in market uneasiness. Moderate. In spite of a rising economy, a fluctuating stock market increases riskiness. ###$$ Corporate profits In 2005, profits will be lower than 15%, but still positive. Profit growth, though lower than in 2004, is expected to be positive, especially for the United States. Much of the early growth was from cost cutting, but more is now coming from added revenue. Moderate. IT spending will continue to increase as individual company profits improve and begin to flow back into the company IDC #

6 TABLE 2 Key Forecast Assumptions for the Worldwide Marketing Automation Applications Market, Market Force IDC Assumption Impact Accelerator/ Inhibitor/ Neutral Certainty of Assumption Geopolitics Terrorism alerts will remain high, although terrorism acts outside the Middle East have diminished. However, if the fighting in Iraq diminishes, it will be because the terrorists are targeting another country. So global terrorism is set to increase, if it changes, because the new venue will cause great jitters among investors. Moderate. New venues always increase uncertainty for a considerable period of time. ###$$ Compliance Attention to compliance will drive marginal new demand. However, compliance will drive greater automated accountability for marketing budgets. Moderate. Compliance regulations may begin to have an effect on software spending in 2005 and beyond. ##### Technology/ service developments Software complexity Complexity will increase. High. The complexity crisis will require new investment to cope. The complexity will assist growth of on-demand CRM solutions. ##### Linux Open source will gain share. Low. This change will have a downward impact on price pressures, but it will drive some new spending in proprietary software to manage and interoperate with Linux OSS. ##### 4 # IDC

7 TABLE 2 Key Forecast Assumptions for the Worldwide Marketing Automation Applications Market, Market Force IDC Assumption Impact Accelerator/ Inhibitor/ Neutral Certainty of Assumption Mobility* The need for more devices with useful applications will continue. Moderate. This will affect field sales automation software growth. Mobile infrastructures are improving, and the appropriateness of the technology is slowly being demonstrated within specific CRM segments, such as sales automation. The greatest inhibitor is the presentation of the application and data availability. Not all data and not all screens need to be recreated, but workflows must be exceptionally well described to achieve the greatest benefits. This factor affects sales more than marketing. Utility computing The concept of utility computing will not be well defined in the marketplace. Low. This will have a low near-term impact on software revenue. Software spending may pick up toward the end of the forecast period. ###$$ Labor supply Productivity management* The search for productivity improvements will continue throughout all areas of CRM. Moderate. This search will impact increasing software revenue growth in custom development and start-ups. ###$$ Offshoring* Offshoring will increase. Low. This increase in offshoring will have a longterm impact on software by driving demand from offshore markets for products of large, worldwide vendors. Software development and call center activity will be most strongly affected. ###$$ 2005 IDC #

8 TABLE 2 Key Forecast Assumptions for the Worldwide Marketing Automation Applications Market, Market Force IDC Assumption Impact Accelerator/ Inhibitor/ Neutral Certainty of Assumption Capitalization Venture Stocks Venture funding will begin to pick up, but funding amounts will be smaller. The housing market is a bubble waiting to happen. There is a moderate risk that the bubble will burst in the next five years and cause a minor recession. Low. Money will continue to open up. ###$$ High. If the bubble bursts, it will be significant. This is a risk factor only. #$$$$ Market characteristics Large enterprise software renewals There will be extreme price pressure on large enterprise software renewals. Moderate. This pressure will have an impact on software revenue growth, but lower pricing will mean increased sales, especially downstream. Some software brokers will figure out the new value proposition and will pull ahead of the overall market, but this will be about taking share away from the laggards. ##$$$ Software licensing Businesses will demand more flexibility. Low. Net spending will not increase, but some companies will make licensing flexibility a virtue. ###$$ U.S. homeland security* The number of government programs to improve homeland security and protect against terrorism will increase. Moderate. Security spending will grow and continue to involve more sectors. Some companies will find efficiencies in using the same software to assess threatening or illegal behavior as they use to assess buying propensity. Service oriented architecture (SOA) Spending on platforms compliant with SOA standards will increase. Moderate. These platforms are complex and will be project driven. 6 # IDC

9 TABLE 2 Key Forecast Assumptions for the Worldwide Marketing Automation Applications Market, Market Force IDC Assumption Impact Accelerator/ Inhibitor/ Neutral Certainty of Assumption Application verticalization There will be demand for clear and unique software vendor product differentiation, faster implementation, and more relevant "out of the box" solutions. High. This demand will require vendors to develop more sophisticated partnerships and increase the market applicability of offered solutions (particularly to SMEs). Market ecosystem Hardware Hardware markets will continue to consolidate, but pockets of growth will occur. Infrastructures acquired before Y2K began to get replaced and upgraded in 2004, but increasing price pressure will negate significant revenue gain. Consolidation will slow, and consolidated centers will begin to buy new equipment to keep up with the workload. Some major infrastructure upgrades are possible in Low. Servers and storage purchased for Y2K are nearing the end of useful life. There will be incursions of Linux into the migrating RISC/Unix base. Converged devices with creative content and interfaces will drive high growth in niches. Services Revenue growth of services organizations will begin to pick up, with greater emphasis on BPO and brokering. Moderate. As corporate profits continue to rise, increased services spending growth will follow. Consumption Buying sentiment IT buyers will continue to be inhibited by uncertainty. High. These trends are already factored into our forecast. ####$ Saturation New markets will be found in emerging economies, and the large ones are India and China. High. These trends are already factored into our forecast IDC #

10 TABLE 2 Key Forecast Assumptions for the Worldwide Marketing Automation Applications Market, Market Force IDC Assumption Impact Accelerator/ Inhibitor/ Neutral Certainty of Assumption CRM analytics* Basic CRM analytic functionality is well established, but specialties like pricing will continue to flourish. Moderate. Increases in functionality will not drive the market but will become more standardized and will make the decision process more manageable. Analytics will also be more widely distributed within the organization, but organizations have yet to change business processes to catch up with the potential established by these applications. ###$$ Software as a service* Software as a service is starting to gain a foothold among SMBs in particular. It is critical that it become a component of software suppliers product portfolios. High. SMBs can more easily buy software. Transparency* User companies are struggling to increase interactive functional transparency in their internal and customer-facing activities. High. Data integration and multichannel marketing will demand improvements in software. A side effect will be more core and predictive algorithms to assist in intelligent decision making at customer touchpoints. Midsize companies* Midmarket and smaller enterprises will continue to adopt marketing and sales applications throughout the forecast period. High. If Microsoft is successful in highlighting this segment and mining it, additional revenue will enter the market and other midmarket application vendors could benefit. The right messaging has not yet permeated this segment. ###$$ Legend: #$$$$ very low, ##$$$ low, ###$$ moderate, ####$ high, ##### very high * Indicates a special relevancy to CRM Source: IDC, March # IDC

11 ESSENTIAL GUIDANCE Actions to Consider! Marketing automation will continue to grow as marketers continue to be pressured to do more with lean staffs. Each marketing activity can be systematized and customized to the individual organization's benefit.! It is essential to determine the desired and potential impact of each form of marketing automation on the existing business process. Prepare properly through meeting and training for changes in workflow and responsibility.! For on-premise vendors, fierce competition and price pressure from software as a service will require rethinking installed pricing and implementation models.! More SMBs will find marketing automation accessible enough to use, even in one- or two-person departments.! Analytics will continue to play a key role in optimizing and standardizing marketing decisions. LEARN MORE Related Research! Worldwide CRM Applications Forecast: Preliminary Findings Show Positive Growth (IDC #33125, March 2005)! Worldwide Sales Automation Applications Forecast (IDC #33114, March 2005)! IDC's Software Taxonomy, 2005 (IDC #32884, February 2005)! Worldwide End-User Business Analytics Forecast: Core Versus Predictive (IDC #32642, December 2004)! Worldwide Customer Relationship Management Analytic Applications 2003 Vendor Shares: A Market Entering Transition (IDC #31510, July 2004)! Worldwide Customer Relationship Management Analytic Applications Software Forecast (IDC #31299, May 2004) Methodology The IDC software market sizing and forecasts are presented in terms of "packaged software revenue." Packaged software is defined as programs or codesets of any type commercially available through sale, lease, or rental, or as a service. Packaged software revenue typically includes fees for initial and continued right-to-use packaged software licenses. These fees may include, as part of the license contract, access to product support and/or other services that are inseparable from the right-to IDC #

12 use license fee structure, or this support may be priced separately as software maintenance. Upgrades may be included in the continuing right of use or may be priced separately. Packaged software revenue excludes service revenue derived from training, consulting, and system integration that is separate (or unbundled) from the right-touse license but includes the implicit value of software included in a service that offers software functionality by a different pricing scheme (e.g., the implicit or stated value of software included in an application service provider's [ASP's] or other hosted software arrangement). It is the total packaged software revenue that is further allocated to markets, geographic areas, and operating environments. The software revenue forecasts presented in this study represent IDC's best estimates and projections based on the following:! Reported and observed trends and financial activity in 2004 as of the end of January 2005, including reported revenue data for public companies trading on North American stock exchanges (1Q04 3Q04 in nearly all cases plus 4Q04 where available)! Additional modeling to fill in any information gaps using a top-down/market-level approach to estimate overall 2004 market sizing! Bottom-up regional forecast growth rates provided by IDC analysts in each geographic region Bottom-up/company-level data collection began in March 2005 with in-depth vendor surveys and analysis to develop detailed 2004 company models by market, geographic region, and operating environment. This activity will form the basis of vendor share, updated forecast, and competitive analysis studies that will appear later in the year. Marketing Automation Market Definition Marketing automation constitutes a major dimension of customer relationship management (CRM). CRM enterprise applications automate the customer-facing business processes within an organization irrespective of industry specificity (i.e., sales, marketing, customer support, and contact center). Collectively, these applications serve to manage the entire life cycle of a customer including the conversion of a prospect to a customer and help an organization build and maintain successful relationships. The CRM applications classified as collaborative provide functionality to enable two or more individuals to share content to achieve a common goal. In this context, marketing applications software automates a wide range of individual and collaborative activities associated with the various dimensions of the marketing process. These dimensions include the following:! Ad management/placement! Lead qualification/distribution! Brand management 10 # IDC

13 ! List management! Campaign execution! Marketing resource management! Campaign planning and management! Media and analyst relations! Collateral management/distribution! Personalization! Database marketing! Primary research! Direct marketing! Reactivation! Electronic catalog! Upsell and cross-sell programs! Event/trade show management! Web activity analysis! Focus groups/media testing! Web advertising! Fulfillment status linkage Copyright Notice This IDC research document was published as part of an IDC continuous intelligence service, providing written research, analyst interactions, telebriefings, and conferences. Visit to learn more about IDC subscription and consulting services. To view a list of IDC offices worldwide, visit Please contact the IDC Hotline at , ext (or ) or sales@idc.com for information on applying the price of this document toward the purchase of an IDC service or for information on additional copies or Web rights. Copyright 2005 IDC. Reproduction is forbidden unless authorized. All rights reserved IDC #

14 Published Under Services: Marketing and Sales Automation Applications; Customer Relationship Management Applications; Customer Relationship Management Applications with Vertical Views 12 # IDC