Salesforce (CRM, Financial) has been extremely busy on the M&A front this year, spending billions of dollars and buying nine companies in the last 12 months.
The company is locked in a fierce battle with Oracle (ORCL, Financial) to run away with the title of “first enterprise company to reach $10 billion in sales from the SaaS (Software as a Service) segment. Salesforce is firmly in control over the customer relationship management software space while Oracle has become more of a horizontal player in the business management software segment with interests in customer relationship management, human capital management, enterprise resource planning and supply chain management.
Revenue growth has been extremely strong for Salesforce this year with the company registering 25.5% growth in the first nine months of 2016 compared to 2015. The growth rate is great because Salesforce has already crossed over $2 billion in quarterly sales and is running fast toward $10 billion in annual sales. But the acquisition spree also indicates that the company is preparing itself for higher competition in the space in which it operates and is trying to firmly entrench itself in areas it believes can be helpful in providing more firepower to the company in the business management segment.
Apart from Oracle, Microsoft (MSFT, Financial) has also stepped up its efforts in the business management segment. Microsoft has a firm presence in the office productivity segment through its Office 365 offering, but the company is also slowly pushing toward the business management software side through Microsoft Dynamics. The growth of Office 365 has already brought Microsoft inside many enterprise-level organizations and, with the acquisition of LinkedIn (LNKD, Financial), the company has access to a huge treasure trove of data which it will undoubtedly use to sell the right product to the right company.
“Dynamics 365 unifies CRM and ERP capabilities into applications that work seamlessly together across sales, customer service, field service, operations, financials, marketing and project service automation.” – Microsoft
All three companies are on a collision course in the SaaS segment, and each wants to be the preferred software provider for enterprises to manage their business processes. Oracle and Microsoft currently lag behind Salesforce in terms of SaaS revenues from business management software, but both have clearly set their targets on this segment – simply because it's huge.
According to Gartner, the CRM market is expected to become a $36.5 billion one by 2017 while Allied Market Research forecasts a 7.2% growth rate for the Global ERP market from 2014 to 2020, eventually to reach $41.69 billion in size. Apart from these two major segments – ERP and CRM – there are plenty of other areas in the business management software space, and the size of the market is bound to grow even faster due to accelerating cloud adoption.
As more and more companies take the cloud route the SaaS model is gaining speed, and this will, in turn, expand the markets for CRM and ERP at a faster pace. All three companies are trying to capture market share, and the entire business management segment is heading toward a three-party fight.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
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