The Gartner Market Share Analysis:CRM Software Report Raises Questions On Accuracy of Market Sizing Reports
The recent Gartner report “Market Share Analysis: Customer Relationship Management Software, Worldwide, 2012” has generated some controversy among the enterprise software set. The report and other reports such as these, are often used for bragging rights by vendors and for buyers to gauge vendor viability.
This specific report attempts to rank CRM software spending by vendor using total software revenue worldwide. The good news – the numbers are directionally correct with Salesforce.com claiming the top mantle from SAP this year with $2.525 billion in CRM revenue (see Figure 1). The bad news – many question the accuracy of the actual revenues numbers as listed in the press release, especially for the Microsoft Dynamics CRM business.
As Scott Bekker at Redmond Magazine reported, “Gartner put Microsoft’s CRM revenue at $1.1 billion, up from $900 million in calendar-year 2011. That’s a sizable bump. As of May 2012, Microsoft was only claiming that all of Dynamics, which includes Microsoft’s established ERP products as well as CRM, amounted to $1 billion in annual revenues.”
Mssr. Bekker makes a polite but astute point. The 26% bump in CRM revenue is significant. However, the total revenues are questionable. In any modest observation, that kind of overall growth in the Microsoft Dynamics unit would have Microsoft CEO, Steve Ballmer, shouting from the tops of Mount Ranier and probably have Kirill Tatarinov next in line to be Microsoft’s CEO.
Figure 1. Gartner’s Recent CRM Software Spending by Vendor, Total Software Revenue Worldwide, 2012 (Millions of Dollars)
Not to violate any copyright laws, despite fair use laws, here’s a link to the full table found in their press release. A recreated table below shows the rankings.
Bottom line it shows Microsoft in 4th place for CRM with over 1.1B in revenue.
Organization 2012 revenues 2012 marketshare (%) 2011 revenues 2011-2012% growth
salesforce.com 2,525.6 14.0 2,004.6 26.0 SAP 2,327.1 12.9 2,325.1 0.1 Oracle 2,015.2 11.1 1,870.0 7.8
Microsoft 1,135.3 6.3 900.9 26.0
The Market Sizing Game For Vendors And Legacy Analyst Firms Flawed With Faulty Methodology
In reality, the market sizing game for enterprise software is both an art with some science. Having played this role as a vendor in an Analyst Relations capacity in a past life, one knows that executives can not disclose such financial information directly to a research or market sizing firm. The research analysts must play a guessing game with the software executive and ask 100 questions to zero in on a number. Unlike hardware, where individual counts are more obvious, software revenue sizing requires analysts to dig deep into financial statements and any conversation where growth rates have been discussed. Revenues are hidden in bundling, suite sales, discounting schemes, channel revenue deals, OEM arrangements, and inter-company transfers. To complicate matters, SaaS revenue calculations can differ from how on-premises revenues are calculated. Analysts must also determine the truthfulness of vendors who are trying to indirectly guide analysts to the “right” numbers. In short, this is hard work.
As assumptions are built on previous numbers, one false guess in a previous year, cascades and geometrically inflates or deflates a set of future numbers. In the case of these CRM numbers, one may speculate that past executives may have provided a higher number than actually generated, resulting in the current alleged inaccuracies. Another speculation may come from previous and current analysts who may only focus on one area of the business and not have the total picture on the Microsoft Dynamics overall business. There are many points of inaccuracy that can occur with software revenue market sizing and every legacy analyst and market sizing firm works hard to avoid these situations. For market analysts, dissecting revenue from vendors such as SAP and Oracle is often difficult as these numbers and break outs are masked with multiple acquisitions and product lines.
To be clear, the SAP and Oracle numbers also seem inflated. These numbers have been inflated over decades. Given that these vendors also have many other lines of revenue aside from CRM, it’s hard to gauge the accuracy of their numbers without some digging. Now one would assume a market sizing firm should be doing this right?
The Microsoft Dynamics CRM Revenues Do Not Meet The General Sniff Test