The San Francisco–based Salesforce.com Inc. (CRM, Financial) is a provider of enterprise cloud computing solutions with a strong focus on customer relationship management, or CRM. It was founded in March 1999 by former Oracle (ORCL, Financial) executive Marc Benioff along with Dave Moellenhoff, Parker Harris and Frank Dominguez. Known for pioneering the software as a service (or SaaS) platform, Salesforce introduced its first CRM solution in February 2000 and has expanded its offerings with new editions, solutions, and enhanced features through internal development and acquisitions. The company’s flagship product is a customer relationship management solution for enterprises.
The other service of Salesforce is to provide platform-as-a-service (or PaaS) solutions via its cloud platforms Force.com and Heroku, which was acquired in 2010. Salesforce manages the largest cloud computing applications and services platform, AppExchange, which was launched in 2005. In 2013, Salesforce launched Salesforce1—a new social, mobile, and cloud customer platform built to transform how companies sell, service, and market for the “Internet of Customers.”
Although the company has seen increasing revenue in the last two years, it has yet to turn a GAAP profit, as growth in expenses has outpaced revenue growth. The stock is down 4% year-to-date.
Growth & Competition
Gartner Inc.’s (IT, Financial) latest worldwide CRM market share report, entitled Market Share Analysis: Customer Relationship Management Software, Worldwide, 2013 stated that Salesforce is the number-one CRM software provider. Based on CRM revenue in 2013, salesforce.com achieved greater total revenue, revenue growth, and market share growth than any other top-ten CRM vendor, the report said. Other vendors the report named were SAP (SAP, Financial), Oracle, Microsoft (MSFT, Financial), IBM (IBM, Financial), and Adobe (ADBE, Financial).
According to a research from analyst firm IDC, most companies are looking to cut infrastructure costs and speed up application development which opens doors for the global market of PaaS (platform as a service) to jump from $3.8 billion in 2013 to more than $14 billion in 2017. The increase in spending is due to “indications of faster acceptance of the competitive PaaS buying proposition and new information concerning past years, particularly related to the acceptance of and market penetration of Microsoft Azure,” the report said. Synergy Research Group said in its 4Q 2013 data that Salesforce, Microsoft, IBM, and Google (GOOG, Financial) continue to lag far behind Amazon (AMZN, Financial) Web Services in the infrastructure as a service (IaaS) and PaaS markets despite strong revenue growth.
Current scenario
It is evident that as traditional enterprise software application and platform vendors shift more of their focus to cloud computing, they’ll become a greater competitive threat to Salesforce. According to a recent report from IHS Technology (IHS), Cisco’s (CSCO, Financial) announcement that it will construct the world’s largest network of clouds with its partners will allow the company to cash in on the global trend of rising expenditures among enterprises for cloud architecture and services.
Competition heating up…
IHS estimates that enterprises will spend more than $235 billion on cloud architecture and services by 2017—a 35% gain from the $174 billion projected to be spent this year, and triple the $78 billion expended in 2011. In 2014, cloud spending is expected to rise 20% from $145 billion last year.
A Gartner report, Market Share Analysis: Customer Relationship Management Software, Worldwide, 2012 published in April 2013 and cited by Forbes said Salesforce.com, led the CRM market with a 14% market share in 2012 and overtook SAP at 12.9%, Oracle at 11.1%, Microsoft at 6.3%, and IBM at 3.6%. Gartner said the top ten vendors worldwide generated $10.9 billion in sales alone in 2012.
Synergy Research Group said in its fourth quarter 2013 research that Amazon leads the public infrastructure-as-a-service (IaaS) market, while IBM clearly leads in private and hybrid cloud infrastructure services. Meanwhile, the public platform-as-a-service (PaaS) market sees heated competition, with Salesforce slightly ahead of Amazon and Microsoft in the fourth quarter of 2013. In aggregate, Amazon is the leader in cloud infrastructure services with a 28% share, followed by IBM, Microsoft, Salesforce, Google, and Rackspace (RAX). Synergy believes in terms of segments, IaaS is growing the strongest, followed by PaaS and then private and hybrid cloud infrastructure services. Synergy estimated that IaaS and PaaS quarterly revenue reached the $3 billion milestone, with full-year 2013 revenues falling just short of $10 billion.
IHS said companies are competing to provide enterprises and consumers with private and public cloud services. It added that Google, Apple, Amazon and Microsoft are offering public cloud storage to drive adoption of the individual companies’ hardware and content. Many companies are heading to adopt the so-called Freemium model, under which premium storage services are available on top of a fixed amount of free storage, in order to compete with the giants.
Recent news reports indicated that cloud computing majors Google, Amazon, and Microsoft are cutting prices on their cloud products, which has led to a price war in the space. Companies such as Salesforce could see margins squeezed as larger and profitable competitors’ lower prices to gain market share.
Future competition
As the cloud computing market gets dense, the competition is bound to stiffen for Salesforce. Gartner believes “CRM will be at the heart of digital initiatives in coming years” and forecasted continued strong growth across all public cloud services market segments, with a CAGR of 17.4% from 2011 through 2017. End-user spending on public cloud services is expected to grow 18% in 2013 to $132 billion and almost $250 billion by 2017, including cloud advertising. Gartner expects CRM market growth to stay moderate in 2015, following two more strong years of investment. CRM software revenue was forecast to reach $23.9 billion in 2014, with cloud revenue accounting for 49%. SaaS- or cloud-based CRM deployments currently represent more than 40% of all CRM deployments and look set to reach 50% in 2015.
