Great news for the CRM business! The world’s largest high tech research and analysis firm, Gartner, is predicting that the worldwide CRM software market is on track to exceeding a whopping $7.4 billion on services spending for the year 2007. That’s up an incredible 14 percent, from $6.5 billion in 2006, making CRM one of the highest growth software segments in the high tech world.

And that’s just the tip of the proverbial iceberg, because Gartner defines total software revenue as revenue generated from new licenses, updates, upgrades, subscriptions and hosting, technical support, and maintenance. Gartner does not include professional services, training and certification, and hardware revenue, which means that the full amount of corporate spending on sales automation is actually larger!

The strong performance of the CRM software market is apparently being fueled by growth across all segments, as enterprises continue to increase their investment in front-office applications. More importantly, CRM spending is being fueled through what Garner characterizes as the “explosive growth” of software as a service (SaaS) solutions inside sales environments. SaaS (aka “on-demand”) is when a company “rents” the software as needed via the Internet, rather than running the system on the company’s own computers.

The SaaS segment of CRM is still relatively small, but it’s growing rapidly. In 2006, SaaS generated $780 million in software and services sales (about12 percent of yearly total CRM software revenue). In 2007, though, SaaS-style CRM is on track to reach a little more that $1 billion (about 14 percent of yearly total CRM software revenue). That’s an astronomical 33 percent growth rate in revenue, year over year, more than double the rate of the total CRM software market.

Ongoing spending patterns and investment priorities within corporations are fueling this interest in SaaS applications, according to Sharon Mertz, research director at Gartner. “The sustained performance of major on-demand solutions providers is driving the growth in the SaaS segment,” she says. “As businesses refresh existing sales force automation systems to align with their renewed drive for business and revenue growth, we expect this to push sales software to become the largest CRM subsegment by 2011.”

Longer term, the situation doesn’t look quite as rosy, though. While Gartner is forecasting that the CRM software market will experience “healthy growth” through 2007, Gartner expects growth to gradually slow in the next 12 to 18 months because of the downstream impact of economic conditions, which they expect to get worse. In addition, as the market increases in size, it’s harder for sales to continue to generate such high growth percentages, even if the revenues continue to increase.

Gartner expects CRM revenues to reach $8.3 billion (an increase of 12.5 percent) and $9.3 billion (an increase of 11.3 percent) in 2008 and 2009 respectively. Mertz believes that in late 2008 and 2009, forward momentum will return to the market as buying decisions become clearer and customers undertake platform migrations to service-oriented architectures. She also predicts that increasing demand for analytics, marketing automation, and a focus on SaaS solutions will continue to drive growth, so long as CRM vendors can continue to deliver applications that show a rapid return on investment (ROI).

Beyond that, Gartner sees CRM growing to over $10 billion in 2010 and $11.3 billion in 2011. If that proves true, CRM will have sustained a double-digit growth rate for half a decade, which is a feat that very few mature software markets have ever achieved.