Mid-Year Market Performance Check-in. Cloud ERP is Mainstream

No doubt there’s a lot of noise in the cloud marketplace these days. There seems to be a new cloud financial management vendor popping into existence every day. Meanwhile the existing on-premise vendors are desperately trying and disguise their existing portfolios as cloud.

But is cloud financial management software really displacing on-premise solutions? And where do the cloud financial management vendors stand with respect to each other? Are there clear leaders?

So it’s refreshing to get a glimpse of the financial management market from Gartner’s annual applications market share report titled “Market Share: All Software Markets, Worldwide, 2010 - April 2011” – covering every major player in the ERP and financial management market. It’s one of the few definitive resources for market share, market share growth, and an ideal study to tap in order to get a feel for market and vendor momentum.

Now, Gartner doesn’t break the report out by cloud vs. non cloud solutions - but looking at the data through a cloud computing lens, it yields some intriguing facts and trends.

Fact #1 Only One Cloud Financial Management Vendor in the Research

You may hear noise from various cloud financials vendors, claiming “we’re #1”, or using the term “we’re the leading” etc. But what matters in a study like this are real world proven, measured deployments.

Now Gartner tracks a lot of vendors in their study – in fact they track over 40 financial management vendors. So you’d expect there should be a batch of cloud financials vendors on the list, right? Wrong.  There’s only one – and it’s NetSuite. There is no second place cloud vendor in the study. The rest of the report is comprised of on-premise vendors who’ve forged their market positions over decades.

Net-net — the growth of the cloud means the cloud financials market is becoming crowded with niche vendors trying to make themselves look larger than they actually are — but it’s key to cut through the vendor hype. Simply, the only cloud vendor tracked by Gartner is NetSuite, the rest are simply too small to register.

Fact #2 Cloud Financials is Mainstream

Where do buyers stand when it comes to selecting on-premise financials vs. cloud financials? At NetSuite, we’re most heavily vested in three markets – North America, the United Kingdom and Australia. So where does NetSuite stand in these markets?

According to Gartner, NetSuite is now the 8th largest financial management vendor in North America, the 9th in the UK, and the 9th in Australia. What other vendors does NetSuite share the top 10 with? It’s the old guard ERP vendors such as SAP, Oracle, Sage, Microsoft, etc. And, as you’ve just read Fact #1, With NetSuite cracking this top 10 group, the fact is cloud financial management has become mainstream. And it’s happened over a remarkably short span of time.

Even more interesting is that NetSuite’s market position last year was 10th, 10th, and 11th, respectively. That is, NetSuite has moved up multiple positions, displacing on-premise vendors, in just a year. All of which leads me to the final conclusion.

Fact #3 Buyers are Choosing Cloud Financials Over On-Premise

This is where it gets really interesting. Now, I’d be lying to you if I told you that NetSuite has the largest market share. NetSuite doesn’t (see Fact #2!), but it’s a top 10 vendor. The fact is NetSuite hasn’t been around for 30+ years to build share, like its top 10 on-premise peers. So market share isn’t really a good measure to use when dealing with a relatively new technology like cloud computing.

So let’s look at market share growth. Simply, are businesses choosing a cloud solution like NetSuite at the expense of on-premise solutions? The nice thing about the Gartner top 10 is that all the other vendors are on-premise, so if NetSuite is growing share, it has to be at the expense of on-premise. So here are the numbers:

The charts bear out the trend, NetSuite, the only cloud vendor, is growing market share much faster than any of its peers. In fact, many of the vendors on the list are actually experiencing declining share. The conclusion is undeniable – businesses are turning to cloud, turning away from on-premise, and the trend is substantial enough to be clearly measured. The trend is particularly acute when looking at market share over the last three year period when businesses have been rather tightly controlled on their application spend:

What Does the Future Hold?

Last year I posted a similar mid-year check in, detailing NetSuite’s share growth. And since then the trend has actually accelerated further. And with bullish forecasts on cloud from leading analysts forecasting it to grow at 3-6X the rate of on-premise, its becoming increasingly clear that the value proposition posed by cloud financials is simply becoming too big to ignore.

Paul Turner

@pauljturner99

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