There’s little doubt that more and more applications are moving from on-premises solutions to Software-as-a-Service; that’s been going on to some extent for at least 18 years, since the early days of Salesforce (or even earlier, if you want to count the payroll processing services from firms such as ADP.) In recent years, this trend has picked up a lot of momentum.
After hearing Oracle co-CEO Mark Hurd suggest that by 2025 two companies would account for 80 percent of all SaaS revenues, I decided it would be interesting to see where the market is now, and just how consolidated it is. It turns out that it’s actually pretty hard to estimate just how large SaaS revenues are and to compare the different types of companies. After all, some companies, such as Salesforce and Workday, are “cloud-native,” and only offer cloud solutions. But the biggest software vendors have also purchased more SaaS solutions. For example, Oracle acquired NetSuite, and SAP bought Concur)
I also left out a number of security and networking vendors, since these aren’t really general productivity applications, as well as a few obvious vertical market solution providers (such as
Then there are the vendors who just don’t give enough detail to make their SaaS revenues at all clear. Amazon WorkSpaces, for example, is probably a rounding error in comparison with the company’s long list of infrastructure and platform services. Similarly, G Suite belongs here somewhere but Google doesn’t break it out, and it is certainly a small part of the company’s overall revenues. The same thing is true for some of the larger, more diversified technology companies: Dell Technologies offers a number of SaaS products, such as Spanning and Boomi, but doesn’t break out the numbers, and this is probably a small percentage of revenue. The same is true for Cisco.
Of course, the biggest issues come up for companies where SaaS is a significant percentage of revenues, but where the definitions are not clear. It’s tough to break out cloud revenues among companies that are more diversified and offer both SaaS and on-premises software, maybe even some hardware. So I’ll admit that these are just guesses, and would love any comments that would help to make them more accurate. Here’s the list, but pay attention to the notes below.
1) Microsoft said its “commercial cloud revenue” run rate grew to more than $14 billion, suggesting quarterly revenues of about $3.5 billion, which would be split among its Azure (IaaS and PaaS) offerings and its Office 365 and Dynamics 365 SaaS services. It’s total “productivity and business processes” group, which would include these products as well as traditional Office and on-premises offerings, did $7.4 billion in revenue. I’m going to guess that Office 365 and similar products are a bit bigger than Azure, so let’s say $2 billion.
2) For ADP, unlike most of the companies on the list, it’s mostly a question of what is software and what is a service. The company said it did $2.3 billion in revenues of “employer services”—essentially human capital management and HR services, including payroll. Some people would call this SaaS; others wouldn’t. Since it competes with companies like Workday and Ultimate Software, I’m including it. If we call half of it SaaS, that’s $1.15 billion, landing it near the top of the list.
3) Adobe reported a run rate of $4.01 billion for its “digital media annualized recurring revenue” including its Creative Cloud and Document Cloud products. Turning that into a quarterly number would make it about $1 billion. Much of this is client software delivered in a cloud model (just like with Office 365), so as with ADP, I’m counting half of that, or $500 million, and then adding the $465 million from its Marketing Cloud product.
4) Intuit is an interesting case, in that its business is highly seasonal, since its tax preparation and electronic filing software is used much more in the early part of the year. The consumer part of that business is mostly online, accounting for 90 percent of the company’s TurboTax users in its big quarter, and virtually all of the users in the current, smaller quarter. In its last reported quarter, the consumer tax business accounted for $42 million in revenue, but in the previous quarter, it was $1.6 billion. Meanwhile, QuickBooks Online and related products accounted for $179 million. So for the most recent quarter, the SaaS number would be roughly $221 million (not counting desktop or enterprise versions of QuickBooks, other small business products, or the professional tax business). However, that’s not representative of the year as a whole. I took the full year’s consumer tax business (just shy of $2 billion), took 90 percent of that, divided by 4 to get a “typical quarter,” and added in the QuickBooks online number, which gives me $662 million. This seems more representative, arguably.
5) IBM doesn’t distinguish among the different kinds of cloud revenue it earns and calls some things cloud that I wouldn’t, but I’m listing it with $600 million, based on reported cloud revenues for its cognitive services group, which includes Watson and other analytics. Based on most definitions, that’s probably high, but it’s the best I could find.
6) Oracle reported $878 million in combined SaaS and PaaS services, meaning a combination of its cloud-based applications, such as HR and CRM as well as database and similar services. For much of Oracle’s business—specifically, the apps that make up its E-Business Suite—customers need to be running both the application and the database platform it runs on. I’m taking half of the revenues, which would result in $439 million in quarterly revenue. (Note that NetSuite, which Oracle acquired, had $230 million in revenue in the second quarter).
7) Dropbox is a private company, but its CEO recently reported it was on a $1 billion run rate, so I’m taking this as $250 million in quarterly revenue.
That’s the best I’ve been able to come up with, though I know it’s far from perfect. I’m sure I didn’t make all the right decisions, so I’d love any feedback on how to improve this list.
One thing that does stand out: of the top 20 vendors I found, the top two account for 40 percent of the revenue, a pretty strong percentage, but still a long way from the 80 percent concentration that Oracle predicted. However, if you look at total revenues and exclude IBM and HP (where applications are a very small part of the revenue), the two large vendors—Microsoft and Oracle—account for 64 percent of the total revenues. (Of course, these two also offer many things beyond applications software.) If you assume the bulk of applications revenues will convert to SaaS over the next few years, that may be a better predictor of how the revenues may break out. Also, recall that I’m excluding Amazon and Google, either of which could be considered part of this chart.
In other words, it seems quite possible that we’ll see significant consolidation in the field, either through the big companies growing their percentage of SaaS revenues or through acquisitions. However, getting to 80 percent seems like a tall order. Stranger things have happened, but it doesn’t look likely to me.
Again, I know I’m making a bunch of assumptions in creating this chart and would love to see more accurate estimates of SaaS revenue for the more diversified companies. I’m open to suggestions.
Michael J. Miller is chief information officer at Ziff Brothers Investments, a private investment firm. Miller, who was editor-in-chief of PC Magazine from 1991 to 2005, authors this blog for PCMag.com to share his thoughts on PC-related products. No investment advice is offered in this blog. All duties are disclaimed. Miller works separately for a private investment firm which may at any time invest in companies whose products are discussed in this blog, and no disclosure of securities transactions will be made.