The global Customer Relationship Management market has been growing at a phenomenal pace over the past few years. According to Gartner, the CRM software market reached $26.3B in 2015, with an annual growth of nearly 14% between 2010 and 2015, and is expected to cross $36 billion by the end of 2017. Salesforce has been a market leader in the CRM space for some time now, and continues to improve its position. We estimate that the company’s market share has more than doubled since 2010, and stood at 22% in 2016. Salesforce’s early foray into the cloud-based CRM space has given it a competitive edge. Its rival SAP , on the other hand, saw its market share fall from around 15% in 2010 to around 11% in 2016. SAP lost some share to Salesforce largely due to its relatively later entry into the cloud space. Going forward, we expect Salesforce to maintain its competitive edge and continue to add significant market share by leveraging artificial intelligence and machine learning.
What Is Salesforce Doing Right?
The entire software industry has seen a gradual shift towards cloud-based implementation and the SaaS (software as a service) model because of its reduced upfront costs, flexibility and easy implementation. Gartner estimates that annual global cloud IT market revenue will grow to $390 billion by 2020, implying annual growth of 17%.
Salesforce also offers Force.com and Heroku, platform-as-a-service (PaaS) application development frameworks which enable cloud-based application development, as well as the AppExchange marketplace, which offers more than 300 apps based on the Salesforce1 platform.
Salesforce made a few acquisitions in 2016. Identifying Artificial Intelligence as a promising growth driver, the company acquired Prediction IO (machine learning), Metamind (deep learning), Implisit (data automation) and BeyondCore (machine learning). In its annual Dreamforce event, Salesforce launched Salesforce Einstein, an artificially intelligent CRM platform. The company also tapped into the e-commerce sector through its acquisition of Demandware (now Salesforce Commerce Cloud) and improved its data processing and collaboration capabilities through its acquisition of Quip. This has opened avenues for further growth and market share gains for the company. Given the expectation that 62% of overall CRM revenue will be cloud-based, Salesforce’s strong position in the domain coupled with its continued product development should help it further improve its market position.
Challenges For SAP
SAP’s later entry into the cloud-based business led to some recent market share losses. After the acquisition of Hybris in 2013, the company realigned its strategy to take on Salesforce. Prior to this, most of the services offered by SAP were on-premise. Although the launch of SAP S/4 HANA has propelled the company’s growth in the cloud domain in recent quarters, it still has a way to go before competing with Salesforce’s market penetration. We expect SAP’s market share to slip further in the next few years.