If timing is everything, the unveiling of salesforce.com's (NYSE:CRM) mobile services application development platform April 9 was spot-on. The service aims to tap the skills of third-party developers, much as smartphone manufacturers do, to expand and personalize the mobile customer relationship management, or CRM, experience. Salesforce says its new platform is "the latest in a series of innovations to empower customer companies to transform for the mobile era."
Just how big a deal is it? According to a Gartner study released April 11, mobile applications for the CRM industry, both in number and the revenue they generate, will explode in the next several years. The CRM landscape is changing, and Salesforce is in the right place at the right time.
The future of mobile CRM apps
Gartner Vice President Ed Thompson described the future of CRM this way: "Customer experience management is emerging as a business discipline for marketing, sales, and customer service leaders. Every day, these leaders are incorporating more new technology into their projects to achieve their organizational goals." Amid the explosive growth of mobile computing, CRM on the go is quickly becoming a necessity for Salesforce and its competitors.
Gartner's recent survey of more than 2,000 CIOs demonstrates just how critical a mobile CRM solution, and the development of associated Software-as-a-Service, or SaaS, apps, will become. As of last year, according to the survey, there were just over 200 CRM apps available for download. That number will jump to more than 1,200 apps by 2014, and SaaS will account for more than 50% of CRM industry revenues by 2016, up from about 39% last year. The winds of change are blowing, and it appears Salesforce is ready.
Preparing for the industry shift
The timing of Salesforce's new mobile app development platform, along with a couple of key acquisitions -- including app-dev solution provider Heroku and Radian6 Technologies, a social-media relationship-management platform -- are feathers in its cap. Rather than respond to industry trends, Salesforce is staying ahead of the curve, which is why Gartner expects Salesforce to retain its leadership position as the largest CRM alternative out there, as measured by revenue.
Salesforce took over the top spot based on revenues in 2012, unseating one of its principal rivals, German-based SAP (NYSE:SAP). Of course SAP, along with up-and-coming CRM competitor Microsoft (NASDAQ:MSFT) with its Dynamic CRM, generate considerably more total revenues than Salesforce. SAP's CRM solutions generated 13.3% of its total 2012 revenue, and about 3% for Microsoft's upstart Dynamic CRM. But SAP's year-over-year CRM revenue growth in 2012 was a paltry 0.1% -- shameful compared with Salesforce's 26% jump.
Though a small portion of overall revenues, Microsoft's relatively new entry to the CRM partyshould not be overlooked. In two short years, Dynamic CRM revenues have climbed to an estimated $500 million a year, equal to a 25% to 30% growth rate. Like Salesforce and SAP, Microsoft offers customers a cloud–based solution and plenty of app development experience.
The revenue improvement Salesforce enjoyed in fiscal 2012 was great, but getting a handle on its nearly 50% jump in operating expenses last year – primarily resulting from a 47% rise in sales and marketing costs to expand its client base -- has to top CEO Marc Benioff's to-do list in 2013. With that said, Salesforce plans to increase hiring for its direct-sales force in 2013, continue growing data center capacity, and "expand our domestic and international selling and marketing activities."
Walking the line between balancing continued growth with rising costs will be a challenge for Salesforce, in 2013 and beyond. But with its new mobile app development platform, and the potential jump in SaaS revenues it brings, the timing looks right for Salesforce.
Fool contributor Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends salesforce.com and owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.