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How Salesforce Is Extending Its Lead in the Cloud

Enterprise cloud computing solutions provider (NYSE: CRM  ) posted terrific numbers once again. The company delivered solid revenue growth in the first quarter and raised its guidance for the full year. However, Salesforce shares fell as the company reported a wider GAAP loss on the back of a jump in operating expenses.

Higher expenses can be expected of a company that's investing in growth to profit from the fast growing cloud business, however, as this is where giants such as Oracle (NYSE: ORCL  ) and SAP (NYSE: SAP  ) are already present. Hence, investors shouldn't ignore Salesforce's potential.

Factors driving growth was chosen by Fortune magazine as the world's most admired software company for the second year in a row. The company attributes this success to its deep commitment to deliver the best solutions to customers.

Salesforce believes that it is well positioned to deliver another year of industry-leading growth. The company believes that the change in enterprise software, where billions of users globally are now using cloud services, mobile devices, and software networks, gives it a big growth opportunity.

Salesforce is now giving businessmen and merchants the flexibility to run their business from their phones. Its new Salesforce1 platform gives customers the ability to use phones, tablet PCs, or other mobile devices to manage and share all of their customer information. This platform has enhanced the capability of its customers, developers, and administrators. Salesforce has over 250 independent software vendors that are developing apps on the Salesforce1 platform, and over 30 productive apps such as Evernote, Dropbox, LinkedIn, and HP are available for the platform. 

Sales Cloud is yet another successful product from Salesforce's stable that's driving its growth. According to Gartner, has extended its lead in automation with multichannel sales greater than the three next competitors combined. Meanwhile, Service Cloud is the leader in both vision and execution in Gartner's most recent Magic Quadrant for Customer Service. The company is complementing these cutting-edge products with its Salesforce1 Platform by bringing customer service solutions to small businesses and enterprises.

A bunch of new deals
As a result of its products, the company is also seeing rapid growth in its customer count. For example, it entered into a relationship with Manulife, one of the world's largest insurance and financial services providers. The client selected Service Cloud to create a single customer engagement platform to deliver personalized services across its life insurance, wealth management, and investment products.

Meiji Yasuda Life Insurance, one of the oldest and largest insurance companies in Japan, is another client of Even this client chose Service Cloud for the first enterprisewide cloud implementation in Japan's life insurance industry. The selection of Service Cloud would allow Meiji Yasuda's agents to close deals and service customers right from their phones. 

In communications and media, Sky Italia chose Service Cloud, the Salesforce1 Platform, and Salesforce communities for its B2C communications business from call centers to self-service department channels. In health care, a number of well-known players started sales transformation with Sales Cloud, expanding with ExactTarget Marketing Cloud to connect directly with millions of people looking to buy insurance. 

Extending its lead
According to The Wall Street Journal, Salesforce is facing pressure from more specialized online software companies. To counter this heat, Salesforce is focused on improving its customer relationships and provide value addition to customers. This would be important for the company in its quest to stay ahead of bigger players such as Oracle.

Salesforce is already doing better than Oracle as it commanded 14% of the CRM market in 2012, worth $18 billion, while Oracle was behind with an 11.1% share, according to Gartner. Salesforce has extended its lead in the last year, increasing its market share to 16.1% in 2013. Meanwhile, Oracle's share fell to 10%. Salesforce's revenue grew 30% in 2013, and outpaced the likes of SAP, Microsoft, and IBM in the CRM space. In comparison, Oracle's CRM business grew just 4%.

Salesforce is also way ahead of second-placed SAP in terms of growth. SAP's CRM revenue was up just 12.7% in 2013, so Salesforce extended its lead quite handsomely. Going forward, it looks likely that Salesforce will be able to widen the gap with SAP if it sustains its growth rate. However, SAP is looking to gain some traction with its Hybris acquisition.

Hybris acquisition has strengthened SAP's e-commerce, master data management, and application portfolio. SAP customers can now choose an e-commerce platform according to their needs, and also get access to product information management, content management, and order management.

Bottom line
Salesforce has reported yet another quarter of solid growth and extended its lead in the CRM market. Looking forward, analysts expect a compounded annual growth rate of 29% in its earnings for the next five years; this is above the industry's average of 15.60%. Therefore, investors should take a close look at Salesforce as it looks like a solid growth company.

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Comments from our Foolish Readers

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  • Report this Comment On May 27, 2014, at 4:42 PM, IlluminatInvest wrote:

    Extenting their lead in the cloud by paying their salespeople with overvalued stock to sell their products below the cost to develop them?

    I would definitely pay $33B for a company that is losing $100M per quarter, what a deal!

  • Report this Comment On May 27, 2014, at 6:10 PM, ElHombre55 wrote:

    SAP systems are not designed for acquisitions and integration. is.

    Salesforce easily integrated with ExactTarget and Heroku, and also with the acquisitions that became Chatter,, and ServiceCloud, Oracle and SAP have no such luck. They will have to do massive restructuring and rewriting of code. Or, as Oracle does now, they will offer a panoply of products which do not integrate well with each other.

    This is one of the reasons that Salesforce will continue to take market share.

    Microsoft defeated Lotus 1-2-3 due to control of the platform (DOS and later Windows). Salesforce's servers run on Windows Server. But the same tricks will not work against Salesforce. They can switch to the OpenStack platform in case Microsoft makes Windows Server incompatible.

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