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By Jo Best, 18 February 2004 17:05

NEWS While the CRM market looks to be once again finding its feet amid signs of a recovery, it seems vendors could be missing out on exploiting a profitable and as yet untapped sector – small and medium-sized enterprises (SMEs).

A report from CRM analysts Hewson Group, CRM Market Size and Trends in 2003, puts the value of the CRM market last year at $8.8bn, up from $7.4bn in 2001. Despite the fact that there are over a million SMEs in the UK alone, the environment for the CRM vendor is a tricky one. SMEs have yet to really take to CRM as much as their larger counterparts and don't have the same budgets to invest in applications.

Nick Hewson, managing director of Hewson Group, said that although the market has yet to reach full demand, the possibilities are out there. "There's a lot of supply out there but I'm not absolutely sure there's huge demand waiting to be serviced. It will take time to gather momentum – there's a lot of market-making activity going on," he told silicon.com.

Having come through the bubble and backlash of over-investment, the question of return on investment (ROI) is bound to be on the minds of budget-conscious directors. A recent report from analyst house IDC showed that businesses can expect an ROI of between 16 and 1,000 per cent but any initial outlay without concrete figures to prove what the investment is worth it can pose a dilemma for those holding the small-business purse strings.

Hewson said that it shouldn't be on the vendor to prove ROI – the business managers need to have a clearly defined business case and agenda in mind for what they hope to achieve from any CRM investment.

Fellow analysts at Gartner concur that the question of ROI can be confusing. One report highlights that although CRM benefits are there to be had, they aren't the same thing as ROI. "In an economic environment where every dollar counts, enterprises should understand how to quantify CRM benefits and use that information as a basis for accurate ROI calculation," says the report, aptly titled Don't Confuse CRM Benefits with ROI.

However, while money might be more of a concern for the small business, Hewson believes SMEs can derive their own set of benefits from CRM.

"SMEs probably won’t have the same burden of legacy systems to integrate their CRM with. They tend to be more intimate with their customers – they have that inbuilt advantage of having management closer to their customers too – and they need to ensure that they leverage that and not inhibit it," he told silicon.com.

The SME CRM market has been attracting a lot of interest from the software big boys - think PeopleSoft, SAP, Siebel and increasingly the folks over in Redmond.

Microsoft's recent foray into the CRM market in January will have a significant impact for SMEs, according to the Hewson Group report. A good CRM channel in Europe is a "necessary pre-requisite... and an asset that Microsoft will have to spend time and resource in developing if their otherwise inevitable success is to be achieved".

If nothing else, Microsoft's decision to enter the CRM market will spark interest from customers and validates vendors' interest in the sector. Dean Carroll, business development manager for Microsoft Business Solutions, told silicon.com: "The market will grow because of our involvement in it. The other organisations in the market will do very nicely out of it."

CRM for SMEs is a big target for Microsoft, Carroll added. "We don't want to be up there competing with the big boys. There's a big opportunity for us in understanding the needs of smaller companies."

So can we expect to see Microsoft CRM products as ubiquitous as Windows? "Given the level of penetration of Windows, it's not practical," Carroll said.

Although a Microsoft CRM application on every business Windows desktop might not be feasible, there's no getting away from the fact that the CRM for SMEs market won't be the same now Redmond has marked out its territory.

Any independent software vendor worth its salt knows that the clout and high profile that goes with the Microsoft name alone should be enough to secure the software giant a sizeable chunk of the market without too much effort. And, as a result, any independent software vendor worth its salt knows that investing time and money in developing applications that sit on top of Microsoft's infrastructure won't be time and money wasted.

Microsoft CRM as ubiquitous as the Windows desktop? Quite possibly not. Microsoft as the de facto CRM standard? Don't rule it out.

For all the latest insight, read silicon.com's special report on CRM.