A friend in the industry asked me the other day if there were any serious challengers to Salesforce.com’s dominance in CRM (Customer Relationship Management). From almost any perspective, the answer is no, not really. Gartner most recently estimated that SAP, Oracle and Microsoft held 12.1%, 9.1% and 6.2% of the CRM market, respectively. Microsoft is the only one to rival Salesforce.com (SFDC) in revenue growth rate, and the only major vendor to actually increase its market share in 2014 (SAP and Oracle both suffered another year of decline). Even so, Salesforce.com’s market share continues to be dominant at 18.4%, expanding at an annual revenue growth rate of 25% as of the most recent fiscal quarter.
What is interesting is that users continue to be dissatisfied with all of these CRM solutions, SFDC included. The category now elicits the dreaded C word – COMMODITY. Salesforce.com was founded as a next generation, SaaS alternative to the heavyweights of that time, including Siebel Systems (acquired by Oracle). Part of the pitch was ease of use, and yet nobody finds the platform particularly easy to use. Even small organizations need implementation and configuration assistance to make the platform effective. Considering this, why does SFDC not just maintain its dominance but also continue to extend its lead in the face of innovative and intentionally disruptive businesses such as Base, Hubspot and SugarCRM, to name a few? The answer is in the ecosystem Salesforce has carefully built and curated in order to better serve its customers.
What the ATS did Wrong and Salesforce did Right
By contrast, we have examined the ATS (Applicant Tracking System) market. There are many similarities between CRM and ATS. Both facilitate critical functions within the enterprise, sales and human resources (HR), respectively. In our opinion, no organization within an enterprise is more critical than sales, as that is the ultimate driver of revenue and growth. However, HR is just a step behind, as without the right people developing products, supporting customers and managing the business, there is nothing to sell. It’s no wonder that CEOs continue to rank human capital as their number one challenge and priority year after year.
The ATS market is on the front lines of this effort to attract and hire the best talent for the business, and not surprisingly, it’s a big market. Not as big as CRM, but a billion dollar market nonetheless, and several billion if you include the adjacent areas within talent management. One could argue that building and managing a candidate pipeline has similar importance to moving sales opportunities through the prospecting funnel.
Like CRM, the ATS market has been reinvented more than once, with innovative, easier-to-use, SaaS-based platforms coming to market in a similar timeframe, the early 2000s, ultimately displacing then leading platforms like Peoplesoft (also acquired by Oracle). A few mid-sized public companies have been built around ATS and broader talent management systems. These include Taleo (again, acquired by Oracle – sense a trend?), Kenexa (acquired by IBM), and Successfactors (acquired by SAP), yet none can claim dominance like Salesforce.com has in CRM. Why is this?
Certainly size of market and other market and buyer dynamics have played a role, but what SFDC did right, and ATS vendors did not, is foster a robust ecosystem around their core solutions, in many respects encouraging other companies to fill functionality gaps and innovate FOR Salesforce.com rather than AGAINST it.
SFDC introduced the Force.com platform-as-a-service (PaaS) and associated development platform to enable rapid application development and integration. The third party marketplace, AppExchange, now boasts over 2,800 pre-integrated apps. Salesforce.com, through the Salesforce Ventures fund, has also made over 150 investments in an effort to help build partner businesses. Nowhere else can we find a company that is so committed to its customers and partners, and likewise, nowhere can we find such a dominant leader within a market.
The Secret to the Salesforce Ecosystem
A secret to, and also misnomer of, SFDC’s “CRM” dominance is that the ecosystem is as much built around the Force.com PaaS as it is around Salesforce.com as a core CRM platform. In fact, many customers, particularly at the enterprise level, purchase SFDC for its PaaS capabilities more than for its CRM solution. But the growth numbers roll up in a manner that attributes everything to CRM.
Real, sizable and independently valuable businesses are being built around this ecosystem. Take Velocify, a lead management and sales acceleration platform. Until recently, Velocify was focused on B2C markets such as mortgage origination and insurance. Partly due to its relationship with SFDC, it has rapidly built its B2B practice, and best of all, this is a win-win for both partners. SFDC doesn’t have the capabilities that Velocify does, yet customers get more value from the Salesforce.com core CRM platform by seamlessly integrating with Velocify for its market leading sales enablement capabilities.
Over time, absent this ecosystem approach, Velocify may have felt it necessary to build competing core CRM capabilities in order to expand its market. In one sense, this could ultimately threaten SFDC, but in another, it may distract Velocify from being the absolute best it can be in lead management and sales acceleration, a benefit to SFDC customers. Salesforce.com’s unique approach both deters competitive threats and keeps partners focused on their respective areas of expertise. This enables them to flourish and build highly valuable, independent businesses for their respective shareholders, all while delivering more value to, and in turn receiving more loyalty from, their customers.
Again, by contrast, none of the ATS players took this approach. Taleo, for example, had an extensive partner network. However, their approach was more self-serving than customer or partner friendly. It had a tone of “you need us more than we need you,” and partners reluctantly paid to integrate in order to access Taleo’s attractive customer base. Over time, as the ATS has become commoditized as not much more than a hiring workflow engine, new businesses have emerged to improve on and replace weaknesses found in the ATS.
One category that has experienced significant innovation is recruitment marketing, solutions that improve candidate attraction and engagement and build talent pipelines, an interesting analog to Velocify at the top of the funnel. Leading vendors in this space include Avature, Jibe and Smashfly. While none of these companies appear intent on displacing the core ATS, they probably could, as one might argue they are delivering value that exceeds that of the ATS. Full displacement or not, they are certainly taking budget away from and diminishing the value of these legacy vendors in the near term.
The takeaway from these parallel stories might be that vendors in other software sectors can run the SFDC play in order to dominate an industry. While this might be true in consumer software, we don’t think it will be the case in enterprise software. Not because CRM is a special category, but rather because SFDC used CRM as the Trojan horse to become the PaaS for the enterprise and thus the foundation for a variety of enterprise applications. We find evidence in the fact that many new startups, in multiple areas of enterprise software, are choosing to build their applications on Force.com. This includes ERP vendors, Practice Management vendors, and ironically, even vendors of Applicant Tracking Systems. As Salesforce.com continues to wow investors with quarter after quarter of consistent, explosive growth, we are witnessing arguably the greatest execution of corporate strategy we will ever see within the software sector.
[This article was contributed by Douglas Melsheimer, Managing Director.]