Cloud, or Software as a Service (SaaS), apps such as Salesforce.com, Workday and NetSuite are moving into the large enterprise space at such a rapid pace, it’s not hard to imagine these companies overtaking the traditional, on-premise players such as SAP, Oracle, PeopleSoft and Siebel. The trend is fueled by a few factors:
- More business applications are created and delivered as SaaS solutions than ever before.
- Force.com (from Salesforce.com) is the cloud development platform of choice for business applications. See Veeva and Apttus as examples of this growing trend.
- The AppExchange from Salesforce.com is rapidly becoming the “iTunes for business.”
- The proliferation of mobile technology extends cloud applications rapidly to users.
- Chief Marketing Officers will spend more than Chief Information Officers on IT by 2017, according to Gartner analyst Laura McLellan.
We see this best by looking at Salesforce.com’s and Amazon Web Services’ business models. Salesforce.com pioneered SaaS as a software delivery model for CRM in 1999, and Amazon was a fledgling online bookstore at the time Salesforce.com was launched. Today AWS provides cloud infrastructure for an estimated $1 billion in Q4 2013 revenue, while Salesforce.com is approaching $4 billion in annual revenues.
AWS recently signed a $150 million contract with the CIA that could be worth $600 million over time. Likewise, Salesforce.com continues to book contracts in the tens and hundreds of millions each quarter, similar to The Coca-Cola Company and GE.
The cloud/mobile effect in the enterprise applications software industry is causing massive upheaval and putting the legacy players – SAP and Oracle – on the defensive, spawning these acquisitions over the past few years:
- SAP – Ariba, SuccessFactors, hybris, Sybase and Syclo
- Oracle – RightNow, Compendium, BigMachines, Collective Intellect, Eloqua, Endeca, InQuira, Involver, RightNow, SelectMinds, Taleo, Vitrue
The enterprise applications industry is shifting in the direction of the cloud players. Companies like Salesforce.com, Workday and NetSuite are closing the gap in the large enterprise space, which SAP and Oracle traditionally owned.