ISG Provider Lens™ Salesforce Ecosystem Partners - Multicloud Implementation and Integration Services for Large Enterprises - U.S. 2024

Salesforce implementations demand optimization services and innovative solutions such as GenAI

Long-term growth and resulting implementation capacity demand

Since its founding in 1999, Salesforce has demonstrated impressive growth over many years and is now one of the leading providers of cloud-based application systems in the form of Software-as-a-Service (SaaS). While growth rates ranged between 24 and 29 percent from 2018 to 2022, in 2023, they slowed to between 10 and 15 percent. Whether this is a temporary phenomenon or whether, given the considerable size of the  company by now, the plateaued growth should be seen more as a normalization, cannot yet be conclusively determined. However, all signs indicate that Salesforce is likely to continue growing significantly in the coming years.

The substantial growth over the aforementioned period has also led to a growing demand for services around the Salesforce platform, primarily for implementation support, but also increasingly for support in operating the ongoing applications. The limited availability of qualified employees with Salesforce expertise is a factor that constrains the number of implementations that can be completed, although recent market developments have partially relaxed this situation. Consequently, ISG has observed considerable consolidation pressure the market for corresponding services, with major system integrators continuously seeking opportunities to expand their capacity by acquiring other providers.

In addition to acquisitions, which ultimately do not generate additional capacities in the market, many providers also focus on increased recruiting. On the one hand, young talents are hired and trained as Salesforce consultants through suitable qualification measures. On the other hand, within some companies, experienced consultants from other areas are certified or recertified in Salesforce. While partnering with such companies, Salesforce significantly contributes to additional implementation capacities. Salesforce has also contributed to consolidation pressure, especially in the U.S., by acquiring well-known midsized providers, such as Acumen and Traction on Demand. However, it seems unlikely that Salesforce will enter the system integrator market on a large scale in this manner; instead, these acquired capacities will be used for further platform development to support market introductions.

Customer structure

The U.S. is Salesforce’s home market, and as such, the company holds an exceptionally high market share. Owing to the market size, the customer structure in the U.S. is highly diverse.

• First, there is a group of globally operating large corporations with complex IT support requirements. These corporations often require global rollouts of a largely standardized core system, which may need to be supplemented with region-specific functions in respective countries. Such extensions frequently involve regulations regarding billing and tax determination. For these globally operating companies, large system integrators, given their global presence, are primary candidates for support in Salesforce implementation and operations. These providers usually follow a global delivery model with significant nearshore and offshore components. Nearshore components are often provided from Mexico or countries in South America.
• Second, midsize companies also play a significant role in the U.S., both in their number and business volume. These companies often prioritize the North American region, with additionally limited business interests overseas, such as in Europe or Asia. Consequently, their IT support requirements have fewer  regional aspects to consider and are often less complex than those of large corporations. Therefore, Salesforce implementations for these companies are often largely standardized, with only industry-specific requirements potentially leading to extensions. These companies often rely on implementation services from midsize providers based in the U.S., typically with a staff size of 100 – 500 employees. Integration aspects are also less significant for these companies. Ongoing operational support mainly involves support for upgrades and possibly necessary developments. Service delivery is conducted within the U.S., although there is an increasing use of nearshore offerings, mainly from Central or South America.
• Lastly, there is another significant segment of the market comprised of many smaller companies that, like midsize companies, predominantly obtain their implementation services from local or regional providers operating primarily from U.S. locations.

Provider structures and technologies

In the 12 months since the release of the last IPL study on this subject, the provider structure in the market for Salesforce implementation services has not structurally changed beyond the mentioned general consolidation trend.

The Hybrid Agile model remains the preferred implementation method for deployments at globally operating customers that need to integrate Salesforce into complex system landscapes. This model typically combines Agile approaches for implementation, with phased approaches for strategy, design, and rollout. Presently, most providers offer this method. A purely Agile methodology is still suitable for the isolated implementation of a Salesforce instance. This strategy is more common among midsize customers with limited integration requirements and no need for a global rollout.

The MuleSoft platform continues to be the preferred tool to integrate Salesforce with other applications.  Thus, comprehensive MuleSoft competency has become a prerequisite to survive in the Salesforce  implementation provider market. Major system integrators primarily operate a dedicated area or department of considerable size where relevant capacities are consolidated.

Salesforce’s verticalization strategy and its implications

Several years ago, Salesforce began developing and offering products with industry-specific features, in addition to products focused more on functional aspects, such as the Sales Cloud and Service Cloud. Among the pioneering products in this category were the Financial Cloud and Health Cloud. Since then, a range of additional products have been added, naturally exhibiting different maturity levels owing to their distinct introduction times. Verticalizing the product portfolio has now become an explicit strategy for Salesforce.

This strategy was significantly accelerated by the acquisition of Vlocity in 2020. Traditionally, Vlocity was a strategic Salesforce independent software vendor (ISV) developing industry specific applications on the Salesforce platform. Following the acquisition, Vlocity’s capabilities contributed to strengthening Salesforce’s industry-specific products. Vlocity’s products are a significant core of Salesforce’s verticalization strategy.

Salesforce’s approach presents a series of opportunities for additional revenues and poses some challenges for service providers. The new products offer an opportunity for providers that have technological expertise and domain knowledge in specific industries attract additional customers. On the customer side, the new strategy requires a detailed examination of the new possibilities and the preparation for a decision regarding potential deployment. However, according to ISG, potential additional licensing costs are viewed critically, as Salesforce license costs have become a considerable factor for many companies. Moreover, the type of transition models that Salesforce will offer to customers that have already invested in functional clouds is unclear. Thus, enterprises initially hesitate to undergo the transition to industry-specific clouds. Service providers need to develop corresponding consulting offerings for efficient license management, and  Salesforce needs to adjust its pricing models to overcome new challenges.

Generally, many client companies find it challenging to keep up with the innovation pace of software providers, including Salesforce, and to swiftly leverage the new opportunities. Strategic developments such as the described verticalization strategy are often perceived as disruptive and can lead to client companies to initially resist new developments. Here again, service providers are required to support their respective clients by offering competent consulting services to evaluate changes and make necessary selection  decisions.

Partnerships

A significant demand persists for addressing requirements beyond the standardized functionality of  Salesforce products through additional products from ISVs. These are typically offered with separate licensing through the AppExchange Store portal that Salesforce operates. Salesforce ensures that individual apps meet basic software quality requirements such as bug fixes, maintenance cycles and compatibility with Salesforce products. For all providers, whether they are system integrators or Salesforce-specialized providers (known as boutique providers), strong partnerships with ISVs within the Salesforce ecosystem remain crucial. This aspect applies not only to implementation but also to the subsequent ongoing operational support.

Furthermore, several providers benefit from close partnerships with Salesforce. Occasionally, these development partnerships, which may culminate in a potential joint product launch. In some cases,  partnerships with Salesforce are established for joint implementations with service providers. This step enables these providers to access additional opportunities and also increases their dependence on Salesforce.

Current technological developments

The use of generative AI (GenAI) is undoubtedly a key topic in IT innovation. Since the emergence and success of OpenAI’s ChatGPT, such advancements have been at the forefront of technological development for all software product providers, including Salesforce. In mid-2023 Salesforce announced the integration of OpenAI’s products into its offering and labeled it as Einstein GPT. In this context, Salesforce’s Data Cloud has also significantly expanded as a central platform for data management, because Einstein GPT increasingly relies on its usage. Service providers play a pivotal role as key partners to help their clients to evaluate these new opportunities and their productive utilization.

Furthermore, many service providers also offer expertise in integration with OpenAI or other products currently in their introductory phase, such as those from Microsoft or Google. Promising initial approaches and successful implementations already exist. However, such projects are mainly in their early and experimental phases. Due to the limited experience with these technologies, it is currently not feasible to provide sufficiently reliable forecast about further developments. The long-term market dominance of specific products remains unclear. Nevertheless, these technologies and their utilization will remain essential to shaping development in the coming years.

Closing remarks on leading service providers in this study:

• Leading providers offer technological expertise and combine it convincingly with process knowledge to ensure the effective implementation of Salesforce.
• Leading providers maintain close partnerships with Salesforce and other technology providers and ISVs.
• Leading providers can support customers in utilizing Salesforce as a platform for continuous innovation. GenAI will be the focal point in the upcoming years.
• Leading providers assist customers to efficiently manage their operational processes and achieve optimized
  utilization of their licenses and related cost management.

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