The Cloud Applications market expanded more rapidly in 2017 than previously expected and robust growth of leading vendors suggested that more breakout years could be in the offing with a few caveats.
The upshot was that the market appeared to be in equally good shape in 2018 with many vendors already chalking up solid double-digit gains for the first nine months. Among the key vendors, Salesforce’s Cloud applications revenues already soared 23% in its first nine months of fiscal 2019, which ends in late January. Oracle’s Cloud ERP revenues are expected to post a 30% increase in 2018 as we previously reported. SAP’s nine-month results showed a 30% rise in Cloud subscription revenues through its third quarter of 2018.
While the Cloud applications market is likely to wrap up 2018 with a high single-digit growth (8% is our current projection), the subsequent years will be more unpredictable.
Here are the reasons:
- A global economic slowdown, which could begin in earnest in 2019, will crimp growth of Cloud applications. Given the disappointing 2019 outlook for technology bellwethers like Apple, LG and Samsung, it would be imprudent to dismiss such cuts ($5 billion+ in reduced revenues for Apple alone for its 1QFY19) not having any impact on the overall market.
- Outsize growth from many Cloud applications vendors has been boosted by their recent acquisitions and it’s likely that their year-to-year increases will become more subdued over time because of the law of big numbers. The same applies to recent IPOs including Avalara, Docusign, Dropbox, and SmartSheet. Dropbox, for one, saw its growth slipping from 40% in 2016 to 26% for its first nine months of 2019.
- Then there is good old competition following the consolidation wave. In September 2018, Zendesk, having grown to be a major force in Cloud-based customer service and support apps market, acquired Base to expand into sales force automation. Every SFA dollar spent on a full suite of Zendesk apps could mean less to go around for other CRM rivals. The Zendesk purchase came after the 2017 launch of Amazon Connect, which is based on the same contact center technology used by Amazon customer service operations. The CRM market will benefit from Amazon’s entry, but the long-term risks for existing customer service and support vendors could be considerable.
In 2017, the Cloud applications market reached $78 billion in Cloud subscription revenues, up 15% from 2016. We expect the market to continue to grow reaching $84 billion in 2018 and exceeding $100 billion by 2022, as shown in Exhibit 1. The exhibit also includes our earlier forecast in March 2018.
Exhibit 1 – Comparing March 2018 and December 2018 Forecast For Worldwide Cloud Applications Market, $M
|2017||2018||2019||2020||2021||2022||2017-2022 CAGR, %|
|December 2018 Forecast||77679*||84155||89524||94287||98224||101295||5.50%|
|March 2018 Forecast||64063||70094||76053||82197||88265||94399||8.10%|
Source: Apps Run The World, December 2018
- Accounting rule changes, disclosure from recently listed vendors and faster Cloud migration from onpremise vendors contributed to higher than expected Cloud revenues in 2017.
Instead of $64 billion, the Cloud applications market actually topped $77.6 billion in 2017. The discrepancy stems from the following factors.
- Reclassification of revenue recognition rules, specifically ASC 606 for Revenue from Contracts with Customers, which went into effect in 2017, would improve financial results of most vendors that sell recurring services like Cloud subscriptions. As a result, higher Cloud revenues would be recognized, in some cases retroactively.
- Cloud delivery of onpremise applications has soared with Amazon Web Services, Microsoft Azure and other Infrastructure As A Service providers making a big push toward helping onpremise vendors like Dassault and others migrate their onpremise applications to the Cloud via Private Cloud, Digital Workspace and other virtual environments without the overhead of traditional data centers. By doing so, the Cloud-equivalent revenues of these on-premise vendors, mostly in the form of subscription, have performed better then expected.
- Recent initial public offerings of vendors like Docusign, Dropbox, Smartsheet and others provide greater visibility into the growth of these SaaS developers over the past few years, surpassing previous estimates because of their ability to build out their global ecosystems, resources and operations to capture a larger share of the Cloud applications market.
Salesforce Leads Cloud Top 500
Salesforce, the reigning Cloud applications champion, continues to show momentum in a market where it has dominated for years. In 2017, Salesforce’s Cloud subscription revenues jumped 23% to reach $7.7 billion, showing consistent growth over the 2015-2016 period when it chalked up a 22% growth.
In 2017, Salesforce secured a 10% share of the market, compared with 11% in 2016. The dip was primarily attributed to the bigger-than-expected expansion of the market as described earlier.
In 2018, Salesforce made the biggest acquisition of its history by picking up Mulesoft for $6.5 billion in its bid to become a multiplatform Cloud vendor. The inclusion of MuleSoft for its Cloud integration offerings will broaden Salesforce’s reach into companies that require multiplatform support. For example, Salesforce Cloud could be easily extended to SAP Cloud, best-of-breed Cloud products and even Private Cloud solutions, especially those that have nothing to do with CRM.
As a result, companies that have been using Salesforce for sales force automation now have every reason to connect that to other functions from HR to finance. In other words, Salesforce could become the system of record for many of its customers. The question is whether these customers are willing to let Salesforce dominate their wallet share.
In 2019, Salesforce is expected to solidify its presence in strategic verticals including financial services, healthcare and public sector. During its latest quarter, Salesforce announced recent Financial Services Cloud wins including Federal Credit Union and Mutual of America Life Insurance, both of which were also picking up Einstein, Salesforce’s artificial intelligent engine that now handles billions of transactions daily covering such activities like sentiment analysis, voice command and guided selling.
Despite the fact that Salesforce is retaining its No. 1 position in the Cloud applications market, other vendors are closing in. Following its acquisition of LinkedIn, Microsoft has seen its Cloud applications market share rising to 9% in 2017 from 7% in 2016. In 2017, there were nine vendors with more than $1 billion in Cloud subscription vendors, compared with eight in 2016.
Without Salesforce, the top 24 Cloud applications vendors collectively saw 39% growth in 2017, compared with 21% in 2016, suggesting that they were amassing more subscription revenues at a faster rate than Salesforce, or for that matter the overall market. The next few years will determine whether Salesforce is capable of extending its lead further with the help of Mulesoft, while its rivals are aiming to undo those gains with their recent acquisitions.
Top 25 Cloud Applications Vendors
Exhibit 2 lists the Top 25 Cloud Applications Vendors, Their Growth, 2017 Shares, and Recent Developments.
|Top 25 Cloud Apps Vendors||2016 Cloud Applications Revenues, $M||2017 Cloud Applications Revenues, $M||YoY, %||2017 Cloud Market Share, %||Recent Developments|
|Salesforce||Subscribe||Subscribe||23%||Subscribe||MuleSoft buy instrumental for Cloud integration.|
|Microsoft||Subscribe||Subscribe||73%||Subscribe||Microsoft Azure is adding 4,000+ new subscribers daily, boosting its Cloud apps sales.|
|Oracle||Subscribe||Subscribe||52%||Subscribe||After buying NetSuite, Oracle emerges as the No. 1 Cloud ERP vendor.|
|SAP||Subscribe||Subscribe||31%||Subscribe||Spending $8B in its biggest purchase, SAP acquired Qualtrics for survey and experience management apps.|
|Adobe||Subscribe||Subscribe||24%||Subscribe||Acquired Magento for eCommerce and Marketo for eMarketing.|
|Workday||Subscribe||Subscribe||38%||Subscribe||Acquired Adaptive Insights to shore up enterprise performance management.|
|ServiceNow||Subscribe||Subscribe||26%||Subscribe||Acquired VendorHawk for SaaS Subscription Management.|
|athenahealth||Subscribe||Subscribe||13%||Subscribe||Veritas Capital, which bought GE Healthcare assets, took athenahealth private.|
|Dropbox||Subscribe||Subscribe||35%||Subscribe||Paid users top 12.3 million with each paying $118.60 on average.|
|Subscribe||Subscribe||29%||Subscribe||Hired former Oracle president Thomas Kurian to lead Google Cloud.|
|Intuit Inc.||Subscribe||Subscribe||8%||Subscribe||Strengthened working capital management and payment offerings for SMBs, along with same-day payroll processing.|
|Open Text Corporation||Subscribe||Subscribe||17%||Subscribe||Aligns with Amazon Connect to expand into Contact Center As A Service market with OpenText Qfiniti.|
|Ultimate Software||Subscribe||Subscribe||23%||Subscribe||Customer count tops 4500+ as Ultimate strengthens ties with Deloitte Canada and other HCM advisory services.|
|IBM||Subscribe||Subscribe||8%||Subscribe||Acquired Red Hat for Cloud security, while IBM unloaded Notes, Sterling and other assets to HCL.|
|Shopify||Subscribe||Subscribe||73%||Subscribe||Relaunched Shopify App Store in 2018 to scale out its ecosystem.|
|RealPage||Subscribe||Subscribe||18%||Subscribe||Targeting 62M rental units for its real-estate management apps and $1B in revenues by 2020.|
|Veeva Systems Inc.||Subscribe||Subscribe||28%||Subscribe||Unveiled Vault CDMS to streamline clinical data management and accelerate study execution.|
|Infor||Subscribe||Subscribe||35%||Subscribe||Acquired Vivonet for cloud-based hospitality apps to strengthen its vertical push.|
|LogMeIn, Inc.||Subscribe||Subscribe||141%||Subscribe||After buying Jive and Citrix’s Gotomeeting assets, LogMeIn forges a new path in CRM, collaboration, and identity and access markets.|
|Blackbaud||Subscribe||Subscribe||22%||Subscribe||Acquired YourCause for enterprise philanthropy, corporate social responsibility and employee engagement software.|
|Box Inc.||Subscribe||Subscribe||27%||Subscribe||Continues with its push into next-generation cloud content management for multimedia assets with help from AI.|
|Cisco Systems||Subscribe||Subscribe||10%||Subscribe||Adding SD-WAN, Digital Workspace offerings to cement leadership position in networking, security and collaboration.|
|Medidata Solutions||Subscribe||Subscribe||38%||Subscribe||Launched virtual trials to allow patients to participate remotely in drug development trials.|
Source: Apps Run The World, December 2018
Similar to last year’s study, our team of global researchers have been fanning out around the world over the past 12 months to conduct hundreds of interviews with vendors, customers and solution providers to gauge the adoptions of Cloud applications as part of their overall digital transformation initiatives. The interview results were incorporated into our annual survey of more than 2,000 leading vendors and their customers across 16 functional areas and 21 verticals as shown on our home page navigation bar.
We encourage you to learn more by accessing our premium content, which covers the entire Enterprise Applications Market split by 45 countries across the Americas, EMEA and Asia Pacific.
Exhibit 3 details 2017 Top and Fastest-Growing Cloud Applications Market By Country.
Our latest market-sizing reports profile the top 10 vendors in each of the 37 markets (see Taxonomy here), offering in-depth analysis of the market dynamics, vendors’ Strengths, Customers, Opportunities, Risks and Ecosystems as well as their ability to gain Shares (SCORES) within their respective space. We also track their successes in the Cloud by breaking down their latest on-premise and Cloud applications revenues. Another metric that we use is win-loss analysis of the quarterly wins of these top vendors and whether incumbents and Cloud upstarts pose any real threat to their standing amid shifting market requirements and user preferences.