Salesforce.com Faces Challenges

Implications: It is premature to predict the demise of salesforce.com. But there are issues constraining future growth.

Analysis: Salesforce.com has done well to date on the strength of the SaaS financial model combined with a simple, easy-to-use interface. Neither of these factors is going away, but their strength as differentiators on the market is being diminished over time by the competition. Microsoft, Oracle/Siebel and SAP are now offering CRM software via the SaaS model, so it is no longer necessary to go with Salesforce to get SaaS for CRM. The user interface for both Oracle and SAP is being improved over time, although it is questionable as to when/if they will achieve what Salesforce already offers. Nonetheless, this also is being reduced as a differentiator, particularly when compared to the Microsoft interface.

Perhaps the biggest concern about Salesforce is whether they will be able to continue their current growth rate. The vast majority of their customers to date are relatively small companies. This is quite understandable, since smaller companies both need an easy-to-use CRM system with minimal capital investment, and usually do not already have a major investment in an on-premises CRM system. Larger companies, on the other hand, do have the capital and patience to make an investment in an on-premises CRM system. In many cases, they have already made such an investment, and are effectively off the market for Salesforce. As an even bigger consideration, larger companies have almost universally implemented an ERP system, and will usually want a CRM system to integrate with that ERP system. While Salesforce can do such integration, it is not particularly easy or cheap. Consequently, larger companies will tend to implement a CRM system that is already integrated with their ERP system, which gives a clear edge to Oracle or SAP in most cases.

The author perhaps takes too extreme a position, but nonetheless he makes valid points. The integration issue is and will continue to be significant, especially with larger companies. Microsoft’s CRM offering should not be discounted either, since they are also targeting the SMB market where Salesforce has been most successful. Their user interface is built around Outlook, which is arguably the most familiar user interface for most users.

Salesforce is still robust and healthy, so it’s very early to predict their demise. But with Oracle and SAP closing in on the high end, and Microsoft on the low end, clearly they face major challenges. Their customer base is relatively loyal, so an actual loss of revenue seems unlikely, but strong growth is going to be difficult. App Exchange was a brilliant idea, but the jury is still out on how much it will contribute to revenue growth for Salesforce. If Salesforce were an average company their future would be considered bright, but expectations (and hype) for Salesforce are much higher. It will not be easy to meet those lofty expectations.