While organizations shouldn’t turn away from cloud CRM altogether, they need to safeguard themselves against an increasingly powerful trio of companies dominating the software-as-a-service space, warned Forrester research in an August industry report covering cloud CRM market consolidation.
Oligopoly, a term defined by the research firm as when just two or three vendors command 70% of a given market, has been reached in the cloud CRM application space, according to Forrester. Cloud titan Salesforce topples the world of cloud CRM applications alongside Microsoft’s Dynamics application and Oracle, which acquired NetSuite in 2016. The three rake in a whopping 70% of revenues for sales force automation and customer service software. Salesforce again takes the lead with Adobe and Oracle in the marketing automation software space, as the industry crowds out smaller vendors such as Constant Contact and Bazaarvoice and nears oligopoly status.
The issue with oligopolies is their power to lock in clients who face fewer options. The industry leaders are more easily able to raise prices without losing customers and have less of an incentive to offer innovative improvements to their software. SaaS customers, unable to go with third-party providers like they would with traditional licensing software, risk losing access to all of their apps if they terminate their CRM contracts. Opposed to ditching the cloud, Forrester suggests organizations should be “taking basic precautions against being captured.”
The report’s lead author, Andrew Bartels, advises organizations to keep contracts for cloud applications to three years or less, and start preparing for renegotiation 18 months into the contracts, granting customers more leverage with current vendors.
“Don’t get so deep into one vendor that you can’t get yourself out,” wrote Bartel, who emphasizes the importance of maintaining access to data, keeping a copy of it, and analyzing it in order to make the decision whether to switch to another vendor.
Forrester also recommends that CIOs assign more people to the process of contract negotiation with vendors, keeping a close on ensuring that what is paid for is delivered.
“You will need to set expectation with your executives and business partners that these costs will rise,” wrote Forrester, which sees a continuation of the oligopoly as very likely, but does mention the possibility of small and mid-sized companies taking a chance on smaller, lower-cost vendors.