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However, Gartner highlighted several factors that contributed to this and stressed that despite the lower revenue growth, there is actually more CRM business in the market.

“The picture in Europe is very fragmented,” says Chris Pang, senior research analyst for Gartner. “Our research shows that growth in spend on CRM software correlates strongly with economic growth measures such as gross domestic product (GDP). GDP growth in countries such as Italy and Germany remains lower than the rest of the world, while market growth in countries such as the UK, Sweden, Norway and Denmark has been more consistent with that in North America. This means we are seeing CRM growth rates ranging from a slight negative to more than 27%, depending on the individual country.”

Gartner also highlighted high levels of acquisitions in the CRM application market, significant price reductions and exchange rate fluctuations as major contributors to the seemingly more subdued levels of growth in 2005.

“Acquisitions of major players, such as PeopleSoft, early in 2005 and Siebel this year by Oracle have played a key role in pushing prices down,” says Pang. “This encouraged more buyer activity with users 'stocking up' on CRM software. The net result is that we are seeing a return to more realistic and sustainable buying levels.”

SAP was the No. 1 CRM vendor in Europe based on total software revenue, with a 32,4% market share in 2005, up from 31,4% in 2004. Siebel was the second largest vendor, but was acquired by Oracle early in 2006. Oracle’s own CRM sales pipeline suffered while customers awaited affirmation of future product directions following its acquisition of Siebel.

Because of the size of Oracle’s acquisition, Gartner predicts that there will be a short term braking effect on CRM market growth. The fastest growing vendors in the European marketplace in 2005 were Microsoft and SalesForce.com.

The highest growth in CRM software could be seen in applications for marketing automation, which increased by 18,6%. This was followed by sales automation at 12,1% and customer service and support applications at 3,6%.

“Businesses in Europe are focusing on new customer acquisition, expanding wallet share, process optimisation and business accountability,” says Pang. “This is resulting in higher demand for applications that drive revenue generation and enhance the customer experience. The functionality offered by marketing automation and analytics applications complements well the renewed focus on revenue and customer growth.”

Gartner also said that businesses are becoming more realistic about what they can achieve with CRM and are making more mature investments above and beyond CRM software.