An "explosive growth" in the software-as-a-service (SaaS) CRM market will play a large factor in global CRM software revenues increasing by about $1bn every year from 2007 to 2011, according to a recent Gartner report.

Chris Pang, an analyst at the research firm, said that while there was a downturn in companies adopting CRM systems in 2000, because of the tendency to “overcomplicate requirements” and go over budget, now there is a renewal of interest as those memories fade.

He added that with so many companies competing in terms of the products they offer, these are becoming commoditised and firms are instead looking to differentiate themselves on enhancing customer experience and CRM.

The SaaS option is attractive because companies can deploy CRM systems on a trial, pay-per-month basis without spending a large sum of money upfront in licence fees, Pang said.

Total CRM software revenues are forecast to exceed $7.4bn in 2007, up from $6.5bn last year. However, traditional on-premises models will face constraints in market growth due to the expansion of on-demand solutions, according to Gartner. "[By the end of 2007] SaaS is forecast to represent more than $1bn in CRM software revenue, growing at more than double the rate of the total CRM software market," the report advises.

The leading on-demand solution provider is Salesforce.com, whose success is down to "its continued expansion of AppExchange, new regional initiatives, and functional application engagements," Gartner said. However, Salesforce is likely to have its market dominance challenged by competitors such as SAP and Microsoft, which will increase their market share by adopting SaaS alternatives.

SaaS is not always the best option, however. Pang explained that on-premises software can be configured to fit exact business requirements and might be better for large companies that have complex integration needs. The best cost model also depends on the usage factor of the company, as large companies with considerable CRM requirements might find on-premises options cheaper, he added.