Trying to determine which companies will emerge to be the future leaders in the cloud computing market is still fairly difficult. A poll taken by Saugatech last year revealed that 51% of the respondents “didn’t know or weren’t sure which company would be the next ‘master brand’”.
While at the application level, it’s easy to view Salesforce.com as the star of that sector, it gets a little murky as you move to other functional areas of the front and back office as well as down the overall cloud ‘stack’. As with most nascent markets, the market is highly fragmented: CoLo/Managed Services (e.g. Rackspace, OpSource, many others), Infrastructure/Platform (e.g. Amazon, Salesforce.com, VMWare, many others), Tools (e.g. Salesforce.com, Corent, Serena, SAP/Coghead, many others), and some a mixture of 2 or more areas (e.g. Salesforce.com).
To make some sense of the trends, I attended a presentation last year by Bill McNee who is an industry analyst with Saugatech. I thought he did a particularly good job breaking the market down into sectors, segments and strategies. Here were some of his observations and predictions he shared with respect to the growth of cloud computing and SaaS at that time:
- Core systems of record (e.g. Finance, HR and BI/EPM) are growing rapidly – both SMB & Enterprise are adopting.
- International is beginning to grow.
- Standalone applications is Wave 1, International is Wave 2, Workflow/Collaboration is Wave 3 and Measured/Monitored/Managed business processes are Wave 4.
- Platforms are beginning to proliferate.
- M&A will accelerate.
- Customer satisfaction is generally quite high with high annual renewal rates.
Bill went on to say that their data showed that 70% of the companies with >100 employees would deploy at least 1 SaaS-based application by 2012. And, he believed that one of the biggest market opportunities would be SaaS-based BI/CPM which in 2008 represented about 17.3% market share and would grow to 40.7% by the end of 2010.
He also predicted that SaaS-enablement would lead to cloud development — which indeed is occurring. Salesforce.com’s announcement of Force.com last year and its latest quarter’s growth from that business is proving this out. In addition, with acquisitions by companies such as SAP with Coghead last year and VMWare with SpringSource this quarter, we are now beginning to gain a sense for how this may play out.
For traditional software companies in the fight for ‘cloud’ leadership, the overriding issue that remains is the hostile business model that SaaS/cloud computing presents. Wall Street measures these companies by in-quarter revenue growth and margins. Deferred revenue and in-quarter expense are antithetical to those models. With Salesforce.com, they have been successful in selling to the Line of Business and primarily SMB’s (that’s where 90%+ of their business still resides). Selling a Platform/Tools to IT and larger companies is a big departure from that success. However, they recently hired some big sales hitters from Siebel Systems to help address that issue.
Here is some other data Bill shared with us based upon their market research polls:
- 40% of large enterprises will seriously consider SaaS-based ERP, HR, order management, and procurement solutions.
- 30% will choose a new next gen SaaS solution provider
- By 2012, only 20%-40% of software will be sold under traditional perpetual license model
In support of this data, I think we are beginning to see SaaS break into the back office — initially in SMB — just as Salesforce.com did with its CRM applications. Companies such as Host Analytics, SmartTurn, and Adaptive Planning are beginning to make progress in an area that has traditionally gone unserved by the large enterprise ERP suppliers such as SAP, Oracle and Manhattan Associates.
However, even though we are beginning to see where companies are picking their spots to compete in the cloud/SaaS space, identifying the future master brand(s) out of this fragmented market is challenging. I would say, though, that the comments I made in a blog I wrote early last year titled “Global Market Leadership” are still germane to becoming the next ‘master brand’. It may be one of the existing competitors we know about today or, in fact, it may come from a new entrant we have not yet seen.
That’s what makes this market so exciting.