Dive Brief:
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In the next four years, the SaaS market valuation is expected to more than double, and vendors including Salesforce, Proofpoint, RealPage, Workday and Veeva Systems will, in particular, find increased value, according to a Morgan Stanley report of 32 subscription-based models. SaaS produces about $3 billion in earnings before interest and tax (EBIT), with $28.5 billion in revenue. Approximately 80% of those profits are attributed to Salesforce, Red Hat and ServiceNow.
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Surveyed CIOs expect to see a growth in application workloads from 8.7% to 20.3% over the course of three years, which is reflective of the increased spend in applications revenue.
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Researchers predict Salesforce's blended gross margins to "trend up to" about 83% from a "continuing mix shift toward subscription revenue, as well as improvement in subscription gross margin," according to the report. Proofpoint, a cloud-based security software, is "generating attractive unit economics" with a projection to hit a 36% operating margin by 2028.
Dive Insight:
As more companies shift to the cloud, reliance on digital methods of storage, protection and management increases. The global market for services on public clouds saw a hike from $49.1 billion in the first half of 2016 to $63.2 billion during the same time in 2017.
As of now, employees use about 16 different SaaS applications daily, and to accommodate the changing landscape of IT through cloud-based integrations, companies like Salesforce are beefing up features and clientele.
In November, Salesforce declared Google Cloud as one of its preferred clouds, and in turn, Google is using Salesforce's software for its sales management. Salesforce is riding on years of success and CEO Marc Benioff expects the company to "exceed $20 billion faster than any other enterprise software company in history," according to a company announcement.
However, while SaaS for the cloud service market holds strong at a 68.7% share, it has the slowest growth compared to its infrastructure and platform counterparts. But that market share is raising competition in the CRM space from Salesforce and Microsoft. Experts agree Microsoft will inevitably expand its 5% share of the CRM market.