The CRM software market is at risk of being controlled by an "oligopoly" of leading companies that puts innovation in danger and leaves companies at risk of vendor lock-in, according to Forrester Research.
Salesforce, Microsoft Dynamics and Oracle now account for 70% of all software-as-a-service (SaaS) subscription revenues for sales automation, the analyst house found when examining the market in its latest report, The Coming Consolidation of Cloud.
Oracle and Salesforce are also edging close to a 70% share of SaaS marketing automation, Forrester said. This dominance has caused revenues for third-party providers, such as BazaarVoice and Constant Contact, to grind to a halt and has effectively pushed them out of the market, it argued.
While dominant market shares can be advantageous to customers, it is reliant on continued investment in new services being offered at the lowest price. The risk is that it's easier for a small number of companies to quietly agree to raise prices or hold off on improving services to maximise profits.
The report, which looked at data from 3,503 businesses across Europe, the US, Australia and Indian, found that SaaS customers, particularly CRM, HR and financial management systems, are increasingly facing vendor lock-in.
While CIOs often complain of facing lock-in from traditional software suites, users often have some control over their implementation, such as skipping upgrade cycles or turning to third-party vendors for reduced fees. "Clients of SaaS vendors don't have these options", the report stated. "If they stop paying the vendor, they lose access to the apps. And their processes and employees are just as tied to the SaaS app as they were to the licensed software apps, making switching costs almost as high."
Customers also face a risk that companies such as Salesforce will become so large that they are unable to keep pace with the growing technology market, the report argued. With investors demanding that profits be maintained, there is a risk that companies will drop their R&D investment to reduce costs, which is particularly concerning for CRM and other SaaS applications as these are dominated by three vendors.
The report also expressed concerns over current public cloud platforms and desktop applications, where the oligopolistic hold is significantly worse. In public cloud platforms, Amazon Web Services and Microsoft Azure are set to capture almost 75% of all revenue for 2017, while 90% of the market share for desktop applications is currently held by Microsoft, Google and Adobe.
Given the risk that a market monopoly poses, including unpredictable price increases, the report recommends that CIOs looking to secure SaaS contracts should limit deal lengths to three years or less, with the aim of renegotiating those deals 18 months in.
