Salesforce.com Thinks Bigger
CRM vendor gears new version of product toward large businesses.
Two years ago, Dennis Hanna decided he needed to keep better track of his company's customer information, sales opportunities, and reports, so he started shopping for sales-force automation software. Almost immediately, the director of business development for Textron Fastening, a $2 billion division of Textron Inc., ran into a big problem. After evaluating the full product suite from market leader Siebel Systems Inc., he calculated the project would cost a whopping $3 million to $5 million.
Such a large-scale project would require senior management sign-off, something Hanna wanted to avoid. So he looked for lower-cost solutions. One thing Hanna considered was a midmarket suite, MultiActive Software Inc.'s Maximizer application set, but even that would have cost about $300,000. Then in late 2000, Hanna received a direct-mail piece from Salesforce.com Inc., which offers customer-relationship management software as a hosted service. Because it costs $65 per user with no startup fees, Hanna signed off on a Salesforce implementation for 200 users.
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Hanna's not the only one. Salesforce's combination of low cost and easy implementation and maintenance has attracted an impressive 3,600 customers--mostly small and midsize companies, or divisions of large companies--giving it the second-largest customer base in the CRM market, behind mighty Siebel. It's also made Salesforce one of the few successful application service providers, a business model that almost disappeared in the dot-com meltdown. The privately held vendor reported $6.8 million in revenue for fiscal 2001 and projects revenue will skyrocket to $23 million in fiscal 2002.
To help fuel that growth, Salesforce is counting on a new version of its flagship product geared toward a new audience, the large enterprise. The software, to be unveiled next week in a glitzy rollout in New York that features aging glam rocker David Bowie, has some high-end functionality that could help overcome some of the perceived weaknesses in Salesforce's software and service.
Moving away from the company's established market to compete directly with larger and better-known software companies is a gamble--especially at a time when some research firms are projecting flat sales for the CRM market in 2002. Salesforce "doesn't compare well at all with other large CRM packages like Siebel and PeopleSoft," Hurwitz Group analyst Sharon Ward says. "They will almost always come up short on the functionality side of the equation."
Benioff took a major risk when he left his executive VP post at Oracle to found Salesforce.com.
Salesforce now hopes its new Enterprise Edition offering will appeal to large-company customers by providing many of the features of large-company CRM software. For instance, Enterprise Edition can be customized for different sales groups within a company. The lack of customization has been a sticking point for users of both low-cost CRM and the ASP model in general.
Another sticking point: links to older systems. "There's no integration with back-end legacy systems, and that's a downfall," Hanna says of his older version of Salesforce's software. That means there's no real-time exchange of information between front-and back-office systems; instead, Hanna has to do batch data dumps from Salesforce into the company's enterprise resource planning system. Enterprise Edition features XML interfaces that, company officials say, will let customers integrate the software with their legacy systems.
Another criticism of Salesforce's service is that it doesn't provide the ability to work with the software offline--when users aren't hooked up to a Salesforce server. In the second quarter, Enterprise Edition will provide sales professionals with offline capabilities. They'll be able to access account, contact, and sales opportunity data while untethered from the company's server.
The application, called Salesforce Offline, runs in Internet Explorer 5.0 and is based on Microsoft's .Net XML architecture. "It looks more like a Palm Pilot than a disconnected relational database operation," CEO Benioff says. An Active X control automatically updates a user's data once the user goes online and synchronizes to Salesforce's hosted site.
Salesforce will further challenge vendors that provide both ERP and CRM capabilities in the coming weeks when it unveils an E-Business Suite that adds to the Enterprise Edition back-office functionality, including order-management, invoice-management, and contract-management applications. "Many ERP vendors like SAP have added CRM to their suites, so it's not surprising that CRM vendors will look to add ERP functionality to their offerings," says Denis Pombriant, an analyst for Aberdeen Group. "It's a smart move."
Even with Enterprise Edition and the E-Business Suite, Salesforce's most competitive weapon will still be price. The base package for small and midsize companies, known as Professional Edition, remains priced at $65 per user per month. Enterprise Edition is priced at $125 per user per month, and the E-Business Suite will be $195 per user per month. Both include the Offline product; for users of Professional Edition, the Offline product is an additional $25 per user per month.
Salesforce wants to change the way customers perceive the company. Not only is the vendor shifting its sales efforts to large businesses, it's cut ties with several small-business portals, such as Excite@home.com and Yahoo Inc., in part to bolster its image as a large-business vendor. "Salesforce is hoping to reposition itself with the enterprise application, but it's more successful in the small-to medium-sized business," Hurwitz Group's Ward says. "The new product won't be enough to attract large corporations."
Don't tell that to Salesforce, which says it has already signed up 30 large businesses for Enterprise Edition. According to company officials, about 25% of its customer base stems from the largest 1,000 companies. But that means the other three-quarters are small and midsize businesses. And while Salesforce claims to be second in total number of customers, it has sold the fewest seats among the top 11 CRM vendors, according to research from Morgan Stanley Equity Research.
Even if Salesforce's new software lacks some of the features of bigger competitors, it still may be enough. "You can get 80% to 90% of what you need in Salesforce's apps," Aberdeen Group's Pombriant says. And it may be time for large companies to give the ASP model a closer look. "There are increasing reasons why organizations need to look at hosted solutions like Salesforce," he says, such as a weakened economy and a renewed emphasis on cost savings. Salesforce is one of a handful of CRM ASPs, including Upshot, Salesnet.com, and Sales.Oracle.com, that offer their own applications. Other ASPs resell and host apps from the established CRM software vendors--PeopleSoft, SAP, and Siebel.
Still, hosted CRM is a tough sell to some enterprise customers. "The one problem with the ASP model for us is that it's geared for a certain-sized business," says Larry Kinder, CIO of Cendant Corp., a $4 billion travel, hospitality, and real-estate conglomerate. "But for a large company like us, our transactions can be quite large." Kinder says it can also be cheaper to manage the apps in-house.
Textron Fastening's Hanna, meanwhile, is considering an upgrade to Salesforce's Enterprise Edition. But he says it will probably be a couple of quarters before the company makes the switch--if it decides to do so. Textron Fastening wants to build a data warehouse for all customer data, which is currently stored in about 17 back-end systems, he says. Once that's completed, Textron may integrate the Salesforce applications with the data warehouse.
It may take time to win over enough large companies to make Salesforce a significant player in the enterprise CRM market. Says Hurwitz Group's Ward, "It's not going to be as easy as they think it will be." Just call Marc Benioff an incurable optimist.