Despite a slowing economy, businesses are spending more -- and likely to continue spending more -- on software to manage customer relationships.

The bullish outlook for CRM software comes in a new report from market researcher Gartner, which projects compound growth for the segment of 11.7% through 2011.

The report isn't complete; Gartner will need a few more months to tally market share numbers, but it does appear that all of the major CRM vendors, including Salesforce.com ( CRM), SAP ( SAP) and Oracle ( ORCL) are taking advantage of the spending surge, says Gartner analyst Sharon Mertz.

Microsoft ( MSFT), which likely trails the three leaders is nevertheless "gaining traction" with its CRM offering and will soon introduce an on-demand version -- code named Titan -- to challenge Salesforce, says Mertz.

Salesforce CEO Marc Benioff says Microsoft's coming effort doesn't cost him any sleep: "Yes I have heard the Titanic has been going to sail every year for the last five years. The world has moved to on demand, and Microsoft still does not have an on-demand business solution. Amazing!" he said in an email exchange.

Maybe so. But according to Mertz, Microsoft's CRM is easy to use, has an attractive interface and seems popular with business buyers she has interviewed.

In any case, software as a service will become an increasingly critical plan for buyers, the report says.

Mertz also expects there will be more consolidation in the CRM market, though it will at the second tier of companies.

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