On-Demand Growth Drives Salesforce’s CRM Market Share

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Trefis
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Salesforce

Salesforce.com’s (NYSE:CRM) share in customer relationship management (CRM) software market has increased from around 7% in 2006 to around 14% currently, gaining share at the expense of SAP (NYSE:SAP), Amdocs and other smaller players like NetSuite and RightNow. The CRM market consists of both on-premise software and on-demand (cloud-based) software. But Salesforce offers only on-demand.

We forecast that Salesforce’s share in the CRM software market will continue to increase due to an on-going shift to cloud-based on-demand software which will benefit Salesforce.com.

While we expect Salesforce’s CRM share will rise close to 25%, Trefis members predict Salesforce’s share will reach 29% by the end of Trefis forecast period. The member estimates imply a potential upside of 9% to our price estimate for CRM stock.

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We currently have a Trefis price estimate of $128 for Salesforce.com’s stock.

On-Demand Growth Will Benefit Salesforce.com

The global on-demand CRM software market has grown from less than $500 million in 2005 to $2.3 billion in 2009, representing an average annual growth rate of 46%, compared to single-digit growth for the on-premise segment of the CRM software market. Gartner had forecast worldwide software as a service (SaaS) revenue within the enterprise application software market to reach $9.2 billion in 2010, up 15.7 percent from 2009. [1] It expects stronger growth in 2011 with worldwide SaaS revenue totaling $10.7 billion.

Gartner estimates that 75% of the current SaaS delivery revenue could be considered cloud service, and that could exceed 90% by 2014 as the SaaS model matures and converges with cloud services models. [2] Given Salesforce’s focus on cloud offerings in CRM, we believe it will benefit significantly from this shift.

Salesforce.com Will Be a Tough Competitor for SAP

SAP has historically concentrated on providing on-premise solutions to its customers. Its slowness in coming up with a comprehensive cloud-based solution has cost it in terms of CRM market share. SAP’s market share in the CRM market has declined from 26% in 2006 to 22% in 2009.

After several rollout delays, SAP’s cloud-based solution Business ByDesign was launched in 2010. Most of the features of SAP’s new product such as real-time analytics, support for multi-tenancy with a single-tenancy option, support for mobile devices, and a rich web user interface have been present in Salesforce for a long time. SAP will have to offer some exciting innovative features in order to make a mark in the on-demand CRM market.

See our full analysis and $128 price estimate for Salesforce

Trefis Community Forecast

Trefis members expect Salesforce’s share in CRM market will increase from 16.3% in 2011 to 28.8% by the end of the Trefis forecast period, compared to the baseline Trefis estimate of an increase to 24.8% during the same period. The member estimates imply an upside of 9% to the Trefis price estimate for Salesforce.com’s stock.

Notes:
  1. Gartner Press Release, Dec 14, 2010 []
  2. Gartner Press Release, July 22, 2010 []