SaaS Market Still Soaring: Microsoft Takes Crown From Salesforce In 2016 Q2, According To Synergy Research

Growth Of A Highly Fragmented SaaS Market

Cloud-based services are an increasingly popular way of delivering software of all stripes, from business applications to collaboration tools to system infrastructure management solutions.

The Software-as-a-Service market grew 33 percent in the second quarter of 2016 and saw more than $11 billion in overall sales, according to an analysis recently performed by Synergy Research Group.

The market is highly fragmented across categories, but in the second quarter, Microsoft overtook Salesforce as the overall leader, with 15 percent of overall SaaS revenue compared with Salesforce's 14 percent (both companies were tied at 14 percent the previous quarter, and prior to that, Salesforce was the longtime leader).

Synergy shared its research on the growth and leaders across six categories: collaboration, CRM, ERP, HR/HCM, other enterprise apps and systems infrastructure software.

The Big Battle

The competition for the top spot between Microsoft and Salesforce is representative of the larger battle playing out in the SaaS market — that between traditional software vendors offering a broad range of products, and those born-in-the-cloud upstarts that focus on a specific application type or industry, according to John Dinsdale, Synergy's chief analyst and research director.

And Microsoft's push into the lead over Salesforce illustrates the current dynamic in that battle.

"It might be tempting to assume that the latter camp is leading the charge," Dinsdale said, "but in fact the traditional software vendors are growing their SaaS revenues more rapidly, helped by their huge base of on-premise software customers that can be aggressively targeted for conversion to a SaaS consumption model."

Collaboration

Collaboration is the largest SaaS category, and Microsoft is the largest player in the field, which explains the software giant's overall Software-as-a-Service dominance.

Cloud-based collaboration software grew 37 percent year over year in the second quarter across the industry.

The vendors trailing Microsoft are Cisco, then Citrix, which are competing against each other with their rival web-based meeting platforms.

CRM

Customer relationship management software, at 23 percent year over year, is growing more slowly than the other services ranked by Synergy.

That relatively slow growth in cloud-based CRM is a factor in explaining why Salesforce is no longer on top of the mountain.

Salesforce still dominates this category, however, followed by Microsoft, and then Zendesk in third place.

ERP

With 49 percent year-over-year growth, enterprise resource planning software is the fastest-growing category in the spectrum of Software-as-a-Service offerings.

SAP is the leader, but the next two contenders are Oracle and NetSuite.

Oracle's move to acquire NetSuite will propel the software giant ahead of SAP in the ERP space, and into the overall top four SaaS vendors, Dinsdale told CRN.

SAP falls into the leading six vendors, with overall SaaS market share between 5 percent and 10 percent.

HR/HCM

Managing human resources is a popular application for cloud-based software, and payroll processing giant ADP leads this category.

Through its dominance in HR/HCM technology, ADP has more than 5 percent market share in overall SaaS, and is in the pack of the leading six vendors.

Cloud-based human capital management software grew 28 percent in the second quarter.

Workday and Ultimate Software came in second and third place in this category.

Other Enterprise Apps

This diverse category, which grew by 36 percent year over year, is led by Adobe, with its Creative Cloud suite of desktop and mobile tools.

Adobe has somewhere between 5 percent and 10 percent market share, ranking in the top six overall SaaS vendors, Dinsdale said.

Accounting software vendor Intuit followed Adobe in second place in the "other" category, with Microsoft taking third.

Systems Infrastructure SaaS

A number of vendors sell Software-as-a-Service products for managing IT systems infrastructure. That category grew by 30 percent in the second quarter, led by IBM.

Big Blue's traditional rivals, SAP and then Oracle, followed in second and third place, respectively.