What’s noteworthy about this shift is that just eighteen months ago an Australian-based manufacturer was only considering SaaS for on-premises enhancement of their CRM system. What changed? The European and U.S. distribution and sales offices were on nearly 40 different CRM, quoting, proposal and pricing systems. It was nearly impossible to track global opportunities.
Meanwhile business was booming in Australia and there were up-sell and cross-sell opportunities being missed in the U.S. and European-based headquarters of their prospects. The manufacturer chose to move to a global SaaS CRM solution quickly. Uniting all three divisions with a global sales strategy forced the consolidation of 40 different quoting, pricing and CRM systems in the U.S. alone. What they lost in complexity they are looking to pick up in global customer sales.
Measuring Where SaaS Is Cannibalizing On-Premise Enterprise Applications
Gartner’s Market Trends: SaaS’s Varied Levels of Cannibalization to On-Premises Applications published: 29 October 2012 breaks out the percent of SaaS revenue for ten different enterprise application categories. The greener the color the greater the adoption. As was seen with the Australian manufacturer, CRM continues dominate this trend of SaaS cannibalizing on-premise enterprise applications.
Additional take-aways from this report include the following:
- Perceived lower Total Cost of Ownership (TCO) continues to be the dominant reason enterprises are considering SaaS adoption, with 50% of respondents in 2012 mentioning this as the primary factor in their decision.
- CRM is leading all other enterprise application areas in net new deployments according to the Gartner study, with the majority of on-premise replacements being in North America and Europe.
- Gartner projects that by 2016 more than 50% of CRM software revenue will be delivered by SaaS. As of 2011, 35% of CRM software was delivered on the SaaS platform. Gartner expects to see SaaS-based CRM grow at three time the rate of on-premise applications.
- 95% of Web analytics functions are delivered via the SaaS model whereas only 40% of sales use cloud today according to the findings of this study.
- The highest adoption rates of SaaS-based applications include sales, customer service, social CRM and marketing automation.
- SaaS-based ERP will continued to be a small percentage of the total market, attaining 10% cannibalization by 2012. Forrester has consistently said this is 13%, growing to 16% by 2015.
- Office suites and digital content creation (DCC) will attain compound annual growth rates (CAGR) of 40.7% and a 32.2% respectively from 2011 through 2016. Gartner is making the assumption consumers and small businesses will continue be the major forces for Web-based office suites through 2013.
- The four reasons why companies don’t choose SaaS include uncertainty if it is the right deployment option (36%), satisfaction with existing on-premise applications (30%), no further requirements (33%) and locked into their current solution with expensive contractual requirements (14%).
Bottom Line: Enterprises and their need to compete with greater accuracy and speed are driving the cannibalization of on-premise applications faster than many anticipated; enterprise software vendors need to step up and get in front of this if they are going to retain their greatest sources of revenue.
Source: Market Trends: SaaS’s Varied Levels of Cannibalization to On-Premises Applications Published: 29 October 2012 written by Chad Eschinger, Joanne M. Correia, Yanna Dharmasthira, Tom Eid, Chris Pang, Dan Sommer, Hai Hong Swinehart and Laurie F. Wurster