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Oligopoly forms amid SaaS market consolidation

Oligopoly is not a word most people use every day, but it has gained currency at Forrester Research.

The technology market research company used the term, which refers to a market segment dominated by just a few vendors, to characterize dwindling competition in the cloud computing market. 

Organizations that use prepackaged cloud applications, or software as a service (SaaS), face a trio of risks, warned an August report that covered SaaS market consolidation. Vendors can raise their prices and cut back on innovative improvements to the software, and since there are few alternatives — especially for CRM applications — keep customers captive.

But CIOs who want cloud benefits like cost savings and the ability to quickly experiment with new technologies shouldn’t change their deployment plans, said the report’s lead author, Andrew Bartels, who covers the CIO role and tech market trends at Forrester.

“Those risks don’t mean you should not be using the cloud,” Bartels said in an interview. “The risks do mean you should be taking basic precautions against being captured, against being locked in.”

And then there were three

The report defined oligopoly as control by just two or three vendors of 70% of a given market. In the world of cloud CRM applications, Salesforce, Microsoft, with its Dynamics application, and Oracle, which bought NetSuite in 2016, claim nearly 70% of revenues for sales force automation and customer service software.

Andrew Bartels, analyst, Forrester ResearchAndrew Bartels

For marketing automation software, Salesforce is close to forming another oligopoly along with Adobe and Oracle, depriving smaller vendors like Constant Contact and Bazaarvoice of revenue share, the report read.

SaaS market consolidation raises the chances organizations will be locked in — forced to paying one vendor for its services forever, the report continued. Whereas customers of traditional licensed software can turn down upgrades or cut maintenance fees by going with third-party providers, “clients of SaaS vendors don’t have these options; if they stop paying the vendor, they lose access to the apps.”

Don’t get so deep into one vendor that you can’t get yourself out.
Andrew Bartelsanalyst, Forrester Research

That lock-in becomes more ominous when prices of cloud application subscriptions rise. That could happen, the report read, when these SaaS giants become so big that they can’t grow faster than the larger technology market. Investors then will demand that they turn profits, and vendors will stop using low prices to compete. Research and development cuts come next, and the big vendors will stop rolling out the kind of innovation that results in better software.

Prepare for the worst

Organizations can gird for such a reality, Bartels said. They can keep contracts for cloud applications to three years or less and start preparing for renegotiation 18 months into those contracts, giving them greater leverage with their current vendors.

“Don’t get so deep into one vendor that you can’t get yourself out,” Bartels said. Organizations need to make sure they have access to their data — so they’ll need to keep a copy of it. Then, “it means being willing to look at and switch to other vendors.”

CIOs should also put in place more people to negotiate contracts with vendors and keep watch over them to make sure what is paid for is delivered and that the vendor isn’t overcharging. And they should assume that vendors will raise their prices sometime in the future and build that into their technology budgets.

“You will need to set expectations with your executives and business partners that these costs will rise,” according to the report.

Oligopoly rules

Are oligopolies of cloud application vendors here to stay? Probably, but there are possible dissolution scenarios, Bartels said. One is the vendors get greedy, charge a lot more and companies stop buying cloud applications. But that’s not likely. What companies might do is turn to smaller, lower-cost vendors as alternatives. Small and midsize companies would probably be the first to take the chance on those providers, but large corporations could eventually follow, Bartels said.

“Traditionally, one of the ways that innovation happens is through vendors starting with low-price products aimed below the target market of the big vendors — then tunneling their way up into the upper enterprise market using a lower price,” he said.

Titans like Salesforce and Oracle are well aware of this dynamic — and therein lies the reward for cloud application customers. SaaS apps have easy implementations and wide geographic reach, so it’s not hard for new vendors to set up shop and start competing, even amid SaaS market consolidation.

“A consolidated market is not necessarily a market without competition,” the report read. “Incumbent vendors can’t rest on their laurels, or increase their prices too much, because a new SaaS vendor with a better value proposition could come along and take customers away.”

For Sale – Asus 1050 ti

Selling due to upgrade pics will be up soon, it’s the expedition version.

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For Sale – Asus 1050 ti

Selling due to upgrade pics will be up soon, it’s the expedition version.

Price and currency: 130
Delivery: Delivery cost is included within my country
Payment method: BT or PPG
Location: Sheffield
Advertised elsewhere?: Not advertised elsewhere
Prefer goods collected?: I have no preference

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For Sale – Asus 1050 ti

Selling due to upgrade pics will be up soon, it’s the expedition version.

Price and currency: 130
Delivery: Delivery cost is included within my country
Payment method: BT or PPG
Location: Sheffield
Advertised elsewhere?: Not advertised elsewhere
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For Sale – Synology DS212J £60 delivered

Synology DS212J.

Server and power supply only.

Price and currency: £60
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Location: Chatham
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For Sale – Asus 1050 ti

Selling due to upgrade pics will be up soon, it’s the expedition version.

Price and currency: 130
Delivery: Delivery cost is included within my country
Payment method: BT or PPG
Location: Sheffield
Advertised elsewhere?: Not advertised elsewhere
Prefer goods collected?: I have no preference

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For Sale – HP EliteDisplay E232 IPS Monitor

HP EliteDisplay E232 IPS Monitor £85 PPG no box, collection only.

Price and currency: £85
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Location: London
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For Sale – HP EliteDisplay E232 IPS Monitor

HP EliteDisplay E232 IPS Monitor £85 PPG no box, collection only.

Price and currency: £85
Delivery: Delivery cost is not included
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Location: London
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For Sale – Synology DS212J £60 delivered

Synology DS212J.

Server and power supply only.

Price and currency: £60
Delivery: Delivery cost is included within my country
Payment method: BT
Location: Chatham
Advertised elsewhere?: Not advertised elsewhere
Prefer goods collected?: I have no preference

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For Sale – i7 5820k

Bought a 5820k for a friends build who has now conveniently changed his mind.

£220inc Special Delivery

Price and currency: £220inc
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Location: Cumbria
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