Oracle (NASDAQ:ORCL) has been a strong performer this year with year-to-date growth of over 10%. In our last article, we discussed the company's position in Database management segment as NoSQL database is getting increased attention. In this article, we will cover a completely different and one of the most important segments of the company, i.e. CRM. This segment accounts for a considerable part of the company's revenues and was responsible for a handsome percentage of growth in the recent quarter.
Strong position in the Market
In the mid of 2013, a research was conducted in the U.S market to find out the market share of different companies in the CRM business. Based on the data collected from 752 different participant companies and with a margin of error of +/- 3.6%, Oracle held 12.4% of the U.S CRM market - with this market share, the company stood at the third position following Microsoft's (NASDAQ:MSFT) Dynamic CRM at 20%, and Salesforce.com's (NYSE:CRM) was at the top with 39.8% of market share, SAP AG (NYSE:SAP) was the fourth major player with 12.4% of the U.S. market share. The research was only done in the domestic market, which accounts for about one thirds of the total revenues for Oracle.
As reported in the last annual statement of the company, operating revenue from North America only accounted for 33% of the total revenues. While operating revenues from Asia Pacific were 35%, and Europe, Africa and Middle East accounted for 32%.
Source: Oracle Annual Report
Asia Pacific is the largest segment for the company - the company is facing competition in the domestic market from Microsoft and Salesforce.com. Microsoft is especially making solid inroads in this market due to its pricing power and the massive infrastructure to support the mobile and cloud capabilities. However, despite the intense competition, the growth opportunity is present in the domestic market as the CRM market is expected to grow over the next few years.
Based on the data from 2009 to 2011, oracle was at the third position in terms of revenue growth in the CRM market behind SAP and Salesforce.com, respectively. The company has held its position in the U.S. market share. In 2012, IDC reported that Oracle was the largest CRM Vendor in the world. The company has shown slow growth in the domestic market as the price advantage of Microsoft has allowed the company to get a larger market share. Looking at the increase in the market share for Microsoft; it is clear that the growth opportunity was present, which Oracle was not able to exploit.
CRM over the cloud has been showing huge growth as compared to the old on-premises software. The company has recently made a move which will likely derive further growth in its currently growing cloud-based programs. Oracle has come up with a program called "Customer 2 Cloud." Under this program, customers are being encouraged to shift from the older on-premises software of the company to the newer cloud-based software of the same category. For instance, the existing users of on-premises PeopleSoft will be redirected to a multi-year Human Capital Management Cloud subscription.
Apart from that, Oracle still has a strong advantage over its competitors. It is taking the lead with its CRM product, Siebel, which will allow the company to target different segments of the market. This is because Siebel is further crafted according to specific needs of the customers. As a result they can pick and choose a group of software to make their CRM. With this feature, customers will have different price ranges to choose from. As a result, companies which are looking to go for a cost reduction and hold on to a fewer but important features can customize the software. This gives Oracle an advantage over Microsoft as Microsoft's Dynamic CRM is more of a generalized CRM software with lower price. It is cost effective as compared to Salesforce.com's software, but customers with crucial and specific needs would likely go for Oracle.
Oracle's customer program could not be timed more perfectly. As we have seen a significant transition from traditional PCs to tablets and smartphones, the new program would complement this need to be mobile. As we have mentioned above, the mobile segment of the CRM business is expected to grow at a high rate over the next few years. It is important for CRM software developers to incorporate mobile features in their software.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. IAEResearch is not a registered investment advisor or broker/dealer. This article was written by an analyst at IAEResearch and represents his/her personal opinion about the companies mentioned in the article. The article is for informational purposes only and it should not be taken as an investment advice. Investors are encouraged to conduct their own due diligence before making an investment decision. I am not receiving any compensation (other than from Seeking Alpha) for this article, and have no relationship with the companies mentioned in the article.