■Business overview of Kit Alive <5039>

5. Market Competitiveness and Growth Potential

Towards 2026, the domestic public cloud services market and the domestic CRM application market are both forecasted to have double-digit annual growth rates, and the company sees continued growth in domestic CRM cloud services demand in the future.

* Refers to services that utilize environments built by cloud service providers rather than creating them independently.

To promote the government's digital transformation (DX), the Japanese government established the "Digital Agency" in September 2021, aiming to improve the convenience for the public and enhance administrative efficiency. Due to factors such as the increase in demand for remote work and online services caused by the COVID-19 pandemic, DX is becoming more active domestically. Specifically, there are various initiatives such as online meetings, telework system implementation, cloud service utilization, and the introduction of RPA (Robotic Process Automation)*.

* Efforts to automate tasks that were previously thought to be only possible by humans using cognitive technologies like AI, machine learning, etc.

In DX, cloud services that provide services such as storage and applications via the internet play a significant role, enabling companies to improve their business operations and enhance competitiveness by leveraging them. Cloud services allow cost reduction and speedy, flexible system operation compared to traditional on-premises* services, enabling companies to selectively build systems by choosing only the necessary components.

* Refers to self-owned and managed servers, software, etc.

According to the "Information and Communication White Paper for the 5th year of Reiwa" by the Ministry of Internal Affairs and Communications, the overall utilization rate of cloud services is increasing year by year, reaching 44.9% in 2022. Including the usage in some locations, 72.2% are using some form of cloud services. The percentage of companies that do not use it is decreasing. It is expected that the use of domestic cloud services will further increase in the future, and the market is expected to mature.

(1) Cloud Services

With cloud services, it is possible to build systems with high scalability at low cost, and enable flexible work styles through remote work without geographical constraints. Furthermore, with the utilization of big data, AI, machine learning, etc., cloud services are expected to provide even more advanced functions, leading to increased demand and market expansion.

The types of "Cloud Services" include: 1) SaaS such as "Salesforce", 2) IaaS (Infrastructure as a Service), which provides infrastructure on the cloud, 3) PaaS (Platform as a Service) which provides a platform for developing and operating applications on the cloud.

*Including security, control, etc., refers to the mechanisms necessary for operating software and applications.

(2) SaaS Products

SaaS products are highly convenient for users and are relatively easy to implement, making them widely used among cloud services. Unlike IaaS and PaaS, which are services for developing applications or building infrastructure, SaaS requires a certain level of knowledge and technical expertise, making it difficult for common businesses to adopt.

SaaS products include various offerings such as CRM to support sales, marketing, customer support, HRM for human resource management, online meeting tools, online payment solutions for e-commerce sites and apps, as well as specialized AI and machine learning tools. The company excels in the field of cloud-based CRM, focusing on assisting customers in implementing CRM solutions, with Salesforce being the key product in their portfolio with a significant global market share.

In Japan, digitalization is advancing in all areas of business, and the demand for SaaS products is increasing. Due to the impact of the corona pandemic, work styles such as remote work and teleworking have changed, leading to a trend of increasing companies using SaaS products. Generally, package type products that require purchase have high implementation and maintenance costs compared to SaaS products that can be used on a monthly basis, resulting in cost-performance issues. Services that were traditionally only provided through packaged products can now also be provided through SaaS products due to the evolution of SaaS, contributing to the expansion of the market share of SaaS products.

In Japan, there are many companies dealing with SaaS products such as Sansan <4443> providing cloud business card management services, Cybozu <4776> providing cloud-based CRMs, Lax <3923> providing business support services including "RakuRaku Kessan", Money Forward <3994> providing cloud-based accounting software, and also freee <4478>. SaaS products are considered a "stock-type business" that can generate revenue regularly as long as contracts are ongoing, making it easier to forecast future revenue.

The SaaS market in Japan is more than 10 years behind compared to Europe and the United States, and has recently entered a growth phase, while the SaaS market in Europe and the United States is already in an expansion phase. In the global market, SaaS companies such as Salesforce, Microsoft , Adobe , Oracle , and SAP already have a significant market share, while domestic SaaS companies only hold a few percent. Compared to the strict restrictions on domestic SaaS companies' distributors and partners, overseas SaaS companies' distributors and partners have broad discretion to sell SaaS products and often provide education and support at their own expense. Partners of companies like "Salesforce" have established highly flexible unique sales systems, leading to very rapid growth compared to distributors and partners of domestic SaaS companies.

(3) "Salesforce"

"Salesforce" holds a global market share in the CRM field alongside Microsoft's "Microsoft 365" and "Dynamics 365", Adobe's "Creative Cloud", Oracle's "Oracle Cloud Applications", and SAP's "SAP S/4HANA Cloud". Salesforce, the largest in the world, has a track record of introducing approximately 150,000 companies domestically and internationally. Despite significantly increasing adoption due to a strong performance during the pandemic, Salesforce announced a substantial reduction in workforce in January 2023 due to a deteriorating business environment and adjusted its expansion strategy. However, the company views that the cloud services market in Japan will continue to expand and anticipates no significant impact.

(Reported by FISCO guest analyst Hiroshi Nakayama)