Product and Industry

Independents vs. Software Suites: How the Cloud Affects the Solutions Landscape

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The world of enterprise software is moving to the cloud. This move enables an ease of integration across other cloud vendors, and – by my prediction – will lead to a profound change.

In the pre-cloud days, any integration across cloud vendors was a huge pain – customers had to build custom integrations any time a new vendor was brought on. Therefore, there was a massive benefit to investing in a suite of solutions, all created by a single vendor. The top suites that emerged were Oracle, SAP and IBM – what I call the enterprise suite “troika.”

But now that we’re in the cloud, you can turn on integration like a light switch. Suddenly, selecting different vendors isn’t an issue. In fact, you can now take advantage of any vendor that has a functionality you like, and it will blend with your software portfolio. And independent solution providers are taking advantage of this, working with one another to develop even more seamless integration. You can pick your favorite mix of vendors and create your own enterprise software mosaic.

Suddenly, investing in a suite from a single vendor isn’t the only option.

But now that you can pick and choose vendors, what’s available? Here are some examples of public enterprise cloud vendors:

  • Workday – for human capital management
  • Splunk – for analytics
  • Tableau Software – for analytics
  • Cornerstone OnDemand – for talent management
  • Marketo – for marketing automation

These enterprise cloud companies are rapidly popping out of the woodwork – none of the above were public prior to 2011. And all of the above companies are now competitive with the enterprise suite troika.

Independent cloud vendors are dominating more and more functions as time goes on. Existing independents are growing fast, and new ones are arriving on the scene.

So what will happen next? Let’s examine a few factors.

Market Size

Dominant enterprise suite vendors (the troika) still maintain the majority of market capitalization. Here is the current market capitalization of IBM, Oracle, and SAP as of November 28th, 2013 (according to Yahoo Finance).

IBM Oracle SAP market capitalization november 2013

I bring market capitalization into the discussion because (according to investors) this is the best indicator of the expected value of these companies’ profits.

This is how a sample of independent cloud vendors compare:

independent cloud vendors market capitalization

As you can see, the market capitalization of this sample of enterprise cloud companies is small, relative to the troika, at this point.

Still, we can also expect a number of private companies to go public in the near future – many of whom will be competitive with IBM, Oracle, and SAP. And when we look at growth, the picture is even more interesting!

Growth Trajectories

First, here are the year-over-year growth rates for IBM, Oracle, and SAP (from Yahoo Finance):

IBM ORacle SAP growth rates

Now, here are the growth rates for the independent enterprise cloud sample:

independent cloud vendors growth rates

The dominant suite vendors are not growing their revenue. They may have pockets of growth within their companies, but my gut feeling is that they can’t match the growth of the independent cloud competitors taken as a whole. The independents are growing like crazy.

There is one more category of companies I need to mention: those who are trying to create suites in the Cloud. I am mainly referring to Salesforce.com and NetSuite. Each of their products will need to fight their own independent battle, so I see them as a collection of different functions that happen to have the same owner. Therefore, their growth rates will be mix of their different product growth rates. Here is the data for these 2 companies:

Salesforce and Netsuite growth rate

In my opinion, there really isn’t much benefit to trying to build out a suite, as opposed to developing functions independently. Customers will still pick the best product for each function.

Who will rule the future?

Here are my predictions:

  • Independent vendors will continue to create innovative new solutions, enriching the technology landscape
  • More companies will want a pick-and-chose approach (as opposed to investing in a suite) as more options makes the case more compelling each day
  • Independents will continue to develop relationships with other vendors (as Marketo does with our LaunchPoint solution ecosystem), making integration even easier
  • The independents will rule

Do you agree, or disagree with my assessment? Does your company use a suite of technology solutions, or do you take a “mosaic” approach? What do you see as the pros and cons of each? Tell us in the comments below.