According to a study by Forrester, the cloud market currently is in a state of “Oligopoly”, which means a market in which a handful of vendors share most of the revenues.
An oligopoly exists when two or three firms in a market segment capture 70 percent of the revenues.
In public cloud platforms, Forrester says that Amazon Web Services and Microsoft Azure will capture almost three-fourths of all revenues in 2017. In desktop applications, Microsoft, Google, and Adobe have a combined market share of close to 90 percent.
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Further, CRM solutions are essentially SaaS oligopolies. Salesforce, Microsoft Dynamics, and Oracle after its acquisition of NetSuite have close to a 70 percent share of all SaaS subscription revenues for sales force automation and customer service applications.
Adobe, Oracle, and Salesforce are moving closer to a combined 70 percent market share for SaaS marketing automation, with second-tier vendors like BazaarVoice, Constant Contact, and Marin Software seeing their revenue come to a screeching stop.
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This trend indicates that a highly consolidated cloud market is starting to occur, which Forrester fears that could bring more risks than rewards for cloud app users.
Public cloud adopters may face lock-in risk as the service vendors show relatively light commitments to cloud solutions.
Cloud clients, at least for SaaS applications like CRM, HR management, and financial management systems, are more vulnerable to vendor lock-in than traditional licensed software clients.
Another risk cited is that future profit pressures may turn SaaS vendors into Scrooges. When that happens, investors will expect these vendors to deliver profits. That’s when vendors with dominant market shares will quietly cease to compete on price and reduce their R&D investments.
According to the market research firm, this risk is most likely to arise initially with CRM software, but it could spread to other SaaS applications as the three largest vendors in each category capture so much market share that they form an oligopoly.
The third risk is that vendors may cut back on innovation as advancements in categories offer less scope for improvements.
Unconsolidated areas
Although the market is nearing consolidation, areas such as ePurchasing, supply chain management, and HRMS are not yet consolidated. In each of these categories, the top three vendors will capture about half of all revenues.
Competition in each space is active, and market shares have flattened out. Coupa, Infor, and SAP Ariba are the largest SaaS vendors in ePurchasing, but they have dozens of competitors.
In supply chain management (SCM), the three largest SaaS vendors — Descartes, Fleetmatics, and Telogis — will face strong competition both from the midsize SaaS vendors like Amber Road, HighJump, Kinaxis, and Llamasoft and from the traditional large SCM vendors.
In human resource management systems (HRMS), Oracle, SAP, and Workday face competition from SaaS vendors like Cornerstone OnDemand, FinancialForce.com, IBM Kenexa, Infor, Saba, and Ultimate Software.
Similarly, eCommerce and FMS are a long way from consolidation. While Microsoft, Oracle, and SAP remain the dominant vendors for enterprise-class licensed financial management systems (FMS) and Intuit and Sage for licensed FMS for small and medium-size businesses, SaaS vendors like Epicor, MYOB, NetSuite (now part of Oracle), Workday, and Xero have made major inroads.
The incumbent vendors are fighting back with their own SaaS solutions, making this a highly competitive space.
eCommerce SaaS vendors like Demandware (now part of Salesforce), FastSpring, and Magento (formerly owned by eBay) are pushing incumbents like IBM and SAP Hybris to respond with their own cloud offerings.
Source: Forrester
