It's a cluttered market, yes, but I still believe there's large-scale untapped potential! I think a segue into 'knowledge management' rather than pure CRM could yield results - I used to work in corporate strategy for a global financial firm, and my takeout was that in many large corporations sales and marketing teams have their particular CRM systems in place but it's not integrated or accessible throughout the company (cue lots of missed opportunities). I see a big need in the corporate world for integrated, enterprise-wide metrics - CRM, but also sales, marketing activities, strategic priorities, financial metrics…all in the one system. It seems basic, but believe me for many large companies 'knowledge management' consists of Powerpoint and Excel docs, and version control is a nightmare. (They talk about Enterprise 2.0 but frankly it hasn't hit any of the firms I've had dealings with). I'd like to see company position snapshots at the click of a button - pull up sales for the last month, overlay with conversion rates, overlay with marketing activities, and overlay again with financial info. This level of transparency is completely lost in large firms and re-enforces a 'silo' company culture. Happy to chat further about it if you're keen, I toyed with a business plan around this before switching to my current startup.
Waste of time? If you are doing more of the same, then yes. But if you are genuinely working on the problem and looking for solutions, then no. Just focus on making the software about the users (get their feedback from the start), and not about the competition.
Have a look at openERP, sugarCRM and Compiere. These are open source ERP/CRM systems. Rather than starting from scratch you might want to look at solving specific business problems instead of focusing on just the technology.