On-Demand Growth Drives Salesforce's CRM Market Share

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Salesforce.com's ( 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 ( 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.

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. 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. 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.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: CRM , SAP

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