As an exodus to the cloud fuels the SaaS industry, global leader Salesforce faces mounting competition from start-ups and tech giants alike.
New data from market research firm IDC show that in the first half of 2017, the global software as a service (SaaS) industry brought in over $43 billion in revenue, up 23% from the previous year. SaaS now comprises nearly 70% of the cloud market, and the ranks of companies shifting from traditional software to cloud-based apps and subscription services continues to swell.
“Businesses now think ‘cloud first’ when it comes to their IT strategy and software footprint, since the benefits of cloud are clear and have been broadly demonstrated in most industries”, said Eric Newmark, Program Vice President of IDC’s Cloud, SaaS, and Industry Cloud practice. “Many companies have picked the low-hanging fruit, in terms of apps that could be easily moved to the cloud, and are now evaluating the migration of their next set of larger strategic systems (i.e. ERP, supply chain applications, etc.) to a SaaS model”, he added.
San Francisco-based Salesforce currently leads the industry worldwide. In fiscal year 2018 (ending January 31) the company is expected to reach $10 billion in annual revenue. CEO Marc Benioff, who started the company in 1999, was among the first to recognise and capitalise on the opportunity to apply cloud computing to software delivery. With a market cap of $76 billion, Salesforce is now the world’s fourth-largest software firm, after Microsoft, Oracle and Germany’s SAP.
Salesforce’s marquee product is customer relationship management (CRM) software, but it also has services for marketing, analytics, digital commerce and others. In the past few years the company has diversified mainly through acquisition. “Some purchases, such as Demandware, a cloud-based provider of e-commerce services that it bought for $2.9bn in cash in 2016, were sensible, but others, such as Buddy Media, a social-media firm it acquired for around $750m in 2012, are viewed as expensive mistakes,” according to The Economist. A note of caution is warranted.
Artificial intelligence (AI) offers a potential avenue for organic growth, though historically Salesforce has lagged behind big players such as Microsoft in AI. It is trying to close the gap. In 2016 Salesforce bought MetaMind, an AI startup. This gave it the talent to integrate MetaMind's technology into its own services and develop its AI offering, Einstein, introduced later that same year.
As younger companies vie for their share of the SaaS sector, there’s always the possibility that a start-up could best Salesforce on price or innovation. Slack, a workplace collaboration platform, says it has over $200 million in annual recurring revenue, and more than 6 million daily active users. Salesforce must also contend with the giants of Silicon Valley, particularly in newer areas of business, such as digital commerce and marketing, where Google and Amazon have the edge. The competition is growing fierce.
