The world’s largest cloud software company, Salesforce.com, looks to be working towards expanding its own addressable market to accelerate its sales growth and pull away from its competitors. The company launched a sixth cloud platform named Wave on October 13, 2014 to enter the Business Intelligence market. Through this new cloud offering, Salesforce intends to provide customers with predictive analytics features by integrating its own Customer Relationship cloud offering. Salesforce Wave is designed to make it easier for everyone to explore data, uncover new insights and take action instantly from any device.
We have a Trefis price estimate of $55 for Salesforce.com, approximately 3.3% higher than its current market price of $53.
Predictive Analytics Tools to Bolster Growth in Business Intelligence Market
Gartner estimates the Business Intelligence market at about $14.4 billion in 2013, up nearly 8% from 2012. Comparatively, the year 2012 witnessed a 7% growth in the BI market on a year-on-year basis from 2011. Despite the faster growth in the BI market in 2013, investments into mainstream BI tools that generate actionable insights have been tepid, with significant investments into ancillary tools such as experimental silos, infrastructure and other support services. Deployment of mainstream BI tools that leverage analytics on big data are likely to accelerate going forward.
German enterprise software giant SAP is the market leader in the BI space, with revenues of over $3 billion, indicating a market share of approximately 21.3%. SAP has been able to support its organic analytics tools from the BusinessObjects line with acquisitions, such as KXEN. Additionally, the launch of the BusinessObjects suite on HANA has further provided strength to its existing analytics portfolio. The second, third and fourth spots are held in close contention by Oracle, IBM and SAS Institute respectively, with market shares of 13.9%, 12.7% and 11.8% respectively.
According to Mr. Dan Sommer, research director at Gartner, “As the [BI] market shifts gear, we see a series of tipping points in 2014 that will accelerate adoption, but it may come from a different place. These tipping points are that half of BI and analytics spend will be business driven, half of new license spend will be driven by data discovery requirements, and half of organizations will consider deploying BI in the cloud, at least tactically.” We believe predictive analytics tools that are business-driven in nature would begin to witness significant uptick in sales going forward.
Salesforce Could Benefit from SaaS Analytics Platform; But Competition is Intense in BI Market
Given the extensive network Salesforce has built in its Sales and Service clouds, utilizing that data on the Wave platform to unveil new insights could immensely benefit its customers. Companies can quickly deploy sales, service and marketing analytics, or build custom mobile analytics apps, using any data source. As of now, Salesforce intends to offer Wave as an analytics tools for sales, service and marketing departments. However, partner companies will be working on other domains, such as human resources and finance. The standalone Salesforce Wave comes in two variants – one for “builders” with access to create and manage data sets priced at $250/month, and one for “explorers” with access to viewing and sharing data insights and dashboards, priced at $125/month.
However, the BI market is only warming up to new areas of focus such as predictive and prescriptive analytics. Currently, BI platforms (both on-premise and on-demand) account for nearly 60% of overall market, or $8.55 billion in sales. These platforms require business analysts to build huge data warehouses and create schemas to access data. While this segment of the market has posted a healthy 9% growth over 2012, niche tools that provide predictive and prescriptive analytics, which stand at just over $1 billion in sales in 2013, seem to be a more lucrative opportunity going forward. A recent report from McKinsey Global Institute highlights that decisions based on data-driven insights result in 23 times greater likelihood of customer acquisition, 6 times greater likelihood of customer retention and 19 times greater likelihood of profitability.
While the entry from Salesforce into the analytics realm is certainly a positive development with good long term prospects, the near term outlook is challenging due to strong competition in the more mature product areas. As niche product areas gain traction, Salesforce has the opportunity to create tools that disrupt the traditional market trend, something it has done well in the past.
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