TUCK SCHOOL OF BUSINESS AT DARTMOUTH

Salesforce.coms success in the CRM cloud space

Final paper | Entrepreneurship and Innovation Strategy | Fall 2011

Jonathan Baumann Manish Dalwadi Patroklos Karantinos Vibhuti Nayar Lin Jiang Yang Zhang

Table of Contents

Section 1 Overview ...................................................................................................................... 2

What is Cloud Computing: .......................................................................................................... 2
What is an ASP: ........................................................................................................................... 3
What is Salesforce.com:.............................................................................................................. 3
What is Salesforce.coms value proposition: .............................................................................. 4
Section 2 - Software-as-a-service Ecosystem ................................................................................. 5
Understanding the ecosystem Salesforce.com faced at inception: ........................................... 5
CoInnovation Risk ..................................................................................................................... 5
Adoption Chain Risk .................................................................................................................... 8
Section 3 What happened and why ........................................................................................... 11
Explaining Salesforce.coms behavior: ..................................................................................... 11
Historical performance: ............................................................................................................ 11
Salesforce.com actions at inception: ........................................................................................ 12
Salesforce.coms actions today: ............................................................................................... 16
Competitive Actions:................................................................................................................. 20
Section 4 - References .................................................................................................................. 22

Section 1 Overview

What is Cloud Computing:

The fundamental idea of cloud computing has existed since the 1960s, when John McCarthy opined that
"computation may someday be organized as a public utility." GE further developed the idea of cloud
computing in the 1970s. Their idea was to centrally stock data and programs and to have client
computers with limited components that could only work with the main storage center. However,
computers and especially data storage were extremely expensive at that time and as a result the idea
was accessible to all but a few affluent organizations.
Later on, the term cloud came from the fact that telephone companies in the nineties, offering their
first Virtual Private Network connection services, would depicts their network with a cloud around the
borders. Using these networks to centralize a companys data and systems was then baptized cloud
computing.
Although conceptually many individuals today have some common notion of cloud computing, the
strict definition is difficult to define. The National Institute of Standards and Technology, defines cloud
computing as a model for enabling convenient, on-demand network access to a shared pool of
configurable computing resources (e.g., networks, servers, storage, applications, and services) that can

be rapidly provisioned and released with minimal management effort or service provider interaction.
Our analysis will focus on Software as a service (SaaS) - to run the programs and functionality via the
cloud.

What is an ASP:
An application service provider (ASP) is a company that provides its services online via the network. The
application software resides on the vendor's system and is accessed by users through a web browser
using HTML or by special purpose client software provided by the vendor. Of course it is also possible to
use custom client software. There are different billing solutions, reaching from membership fees to
peruse fees.
The advantages of ASP are:

No more software integration

Software costs are reduced as no redundancy

Professional support specialized by product

System up to date at all times

More scalable over time and more reliable

Less IT personal needed

The disadvantages are:

Security risk:
o

Loss, theft or falsification of corporate data

Damage to corporate image

Costs for customized solutions

Clients must be willing a accept the terms and conditions

Loss of control over the functions for the clients

Large changes are expensive and complicated

What is Salesforce.com:
Salesforce.com (NYSE: CRM) is an enterprise cloud computing company headquartered in San Francisco
that distributes business software on a subscription basis. Salesforce.com hosts the applications off-site.

It is best known for its Customer Relationship Management (CRM) products and, through acquisition,
has expanded into the "social enterprise arena."
Salesforce.com was launched in 1999 by former Oracle executive Marc Benioff as a software-as-aservice company. The IPO was in 2004. Today Salesforce.com is headquartered in San Francisco with
other major offices are in Toronto, and Sydney. Salesforce.com has its services translated into 16
different languages and currently has 82,400 customers and over 2,100,000 subscribers. The Sales Cloud
has a real-time sales collaborative tool called Chatter. It provides sales representatives with: complete
customer profile and account history. The tool allows to manage marketing campaign spending and
performance across a variety of channels from a single application, tracks opportunities, make educated
decisions, connect to customers, collect information.
Today Salesforce.com is part of the S&P 500 index from Standard & Poor's and was recognized as one of
Fortune's 100 best companies to work for and a key player in the cloud provider industry.

What is Salesforce.coms value proposition:

Think about the Internet the way you think about other modern networks. You dont build your own
power plant to get energy. You dont pay the electric company for five years up front based on a formula
that has nothing to do with real consumption. Instead, you tap into grid and pay for what you use. Why
shouldnt you pay for software the same way you do for other utilities? ~ CEO Marc Benioff
The above quote highlights the value proposition that Salesforce.com has to offer. It allows the
businesses to work on software without necessarily owning them. They aim to highlight the benefits
their software offers which include low cost of entry, quick deployment, scalability, and ease of use.

Section 2 - Software-as-a-service Ecosystem

Understanding the ecosystem Salesforce.com faced at inception:
This section describes the dynamics of the ecosystem that Salesforce.com had to develop to make their
SaaS business model successful. We will discuss co-innovation risk and adoption chain risk that
Salesforce.com faced in 1999.

CoInnovation Risk
It could be said that Salesforce.com was the right technology at the right time by the virtue of the fact
that a lot of co-innovation for it to succeed was already prevalent (as seen in the figure above) in the
environment without Salesforce.com having to propel it. This included the rapid rise in Internet
technology and hardware development. But, this is only half the story; there was co-innovation risk. The
key co-innovation risk for Salesforce.com was having the right partners in a coalition which would allow
Salesforce.com to integrate its software with the legacy systems and also promote wide spread
adoption by developing customer trust in SaaS.

The following are key Salesfore.com co-innovators or co-innovation enablers:

1. Application partners Similar to the Kittyhawk HDD, the Application Service Providers of past failed
because they were too early; the ecosystem was not remotely ready. However by 1999, advances in
HTML, web protocols and communication infrastructure have allowed greater flexibility in the
software user experience to be modified to the expectations of the customers. Salesforce.com has
benefited from these advances, but needed to find partners to make their SaaS value proposition
something customers would be willing to try out. As a result, in order further develop the 1999
ecosystem, Salesforce.com aimed to cultivate partners to help fill out the ecosystem.
It looks like Salesforce.com took a 2-step approach towards this co-innovation partner initially
Salesforce.com partnered with existing consultants and software providers to reach out to a larger
customer base. For instance, in June 2001, Salesforce.com partnered with Portera, a vertical service
provider (VSP) for the professional services industry. This would enable Salesforce.com to offer its
CRM and other application to Portera current and prospective customers. This provided
Salesforce.com with an existing customer-base to which they could market their software and begin
to gain market credibility with their SaaS model.
Similarly in February 2002, Salesforce.com entered into a technology relationship with Informatica
Corporation to provide integration of Salesforce.com online CRM solutions with the legacy
databases and applications. This partnership would allow Salesforce.com to integrate its offering
with the customers existing systems and consolidate data for internal analytics. Further, in February
2002, Salesforce.com formed an alliance with TIBCO Software Inc. (NASDAQ: TIBX) to provide their
customers with TIBCO's Enterprise Application Integration (EAI) tools. This would meet customers
CRM needs by allowing real-time integration of Salesforce.com's online CRM solution with back-end
enterprise systems and applications.
These early partnerships allowed Salesforce.com to establish itself firmly in the CRM industry and
begin developing a customer base; by 1/31/2003, the company had 5,700 customers and 76,000
subscribers. We suspect without these partnerships with companies with access to relatively large
customer bases, Salesforce.coms growth would have been much slower.
2. Third party developers - Once the company was established, in 2006, they launched AppExchange
and development platform. According to the company website, in 2006, more than 400

AppExchange applications were created by Salesforce.com partners and developers, 170,000 test
drives on the AppExchange and 16,000 installations were initiated. By launching AppExchanges,
Salesforce.com stayed ahead in co-innovation by asking the third party developers to develop
software which could serve both broad and niche customers without committing resources to it.
Further, this would widen the offering available to the existing Salesforce.com customers.
In 2008, Salesforce.com launched Force.com, which would allow the third party developers to build
and design apps for Salesforce.com.
3. Internet service providers - Internet service providers were key links in the success of
Salesforce.com. Absence of a reliable internet connection would be detrimental to success of on
demand software. Fortunately, for Salesforce.com, internet was increasingly being more reliable,
fast and user-friendly by 1999. Since, early 2000s, the broadband services have become faster and
cheaper enabling increasing number of business to be wired. Salesforce.com also took steps to
harness this capability effectively by signing a strategic alliance with Sprint in 2001.
4. Innovation in Hardware - Cloud computing requires hardware at 2 levels:
a. Salesforce.com hardware - high performance servers which offer reliability and can be scaled
easily. Salesforce.com needed better hardware for them to offer reliable cloud computing
services to the consumer at low cost.
b. Hardware at customer level: Most corporates needed hardware such routers, switches to create
internal LANs/WAN to benefit from cloud computing and to truly link their organizations.
5. Hardware prices: the prices of hardware fell quickly through the late 1990s/early 200s as the
competition and capabilities increased. This allowed Salesforce.com to effectively offer its services
to the customers at lower prices.

Internet
Tieups with existing
solution providers
egInfomatica,
Protera

Salesforce
Coinnovation

Developers

3rd party developers

through
Appexchange and
Force.com
Hardware

Adoption Chain Risk

We identified the following stakeholders on the value chain of Salesforce.com key to the successful
adoption of the solutions: developers, consultants and corporate users. Ultimately, Salesforce.com
needed to acquire as many users as possible. And not just from a profitability standpoint. More
importantly, the more users, the greater the value for everyone in the ecosystem because partners and
developers are drawn to growth opportunities, and users are drawn to an abundance of custom
applications.
Below is a diagram of the adoption chain dynamics:

Partner

Salesforce.com

Developers

Sell

Corporate
Users

Consultants
Sell / Partner

To achieve significant customer acquisition, in addition to marketing directly to the corporate users,
Salesforce.com worked very closely with software developers and consultants to take advantage of the
influence these two parties can potentially impose on the corporate users. On the other hand, a more
diverse variety of applications will spur the increase in Salesforce.coms footprints among customers,
which will drive growth among developers and consultants as well.
In that case, when promoting adoption, Salesforce.com not only needs to address the issues from the
end-users perspective, but also to respond to the concerns arise from key stakeholders along the value
chain, particularly developers and consultants.
The follow are key adoption chain concerns for Salesforce.com:
1. IT department - Budget, security/stability and system integration/migration are CIOs three biggest
concerns. CIO controls the IT budget and welcomes a cost reduction by paying a fixed monthly fee to
Salesforce.com instead of paying a huge amount of money for software subscription, maintenance
and support. However, they have to be assured that the cost reduction will by no means be offset by
security problems and migration costs. In addition, there will be organization inertia to overcome.
Many of these customers have built their organization around the old software model. If the value
proposition is only marginally better, it is unlikely an IT department will adopt SaaS.
2. Internal software development Salesforce.com will most likely encounter resistance from internal
software development team as well. What concerns them most are the implications to their scope
of responsibility. Integration with the companys existing software and applications is a key
component of the implementation. Adoption of Salesforce.com may restrict the internal developers
involvement in altering the design of the software in pipeline or creating add-on features to the
existing software. Developers first, dont want to be replaced with an out-of-the-box solution, but
secondly they want an environment where they can be creative. As a result creating traction in the
developer space is important for Salesforce.com
3. Sales and Marketing - As the ultimate end-users, although SaaS empowers them and indeed
facilitate their day-to-day operations, Sales and Marketing people may resist simply because of the
complication involved for getting familiar with the new system. In that sense, Salesforce.com must
position itself as easy to use and provide proper training for a quick adoption.

4. 3rd Party Developers Salesforce.com believes that acquisitions of small developers and their
applications that can be incorporated into new and existing product lines will reduce customer
attrition and encourage adoption. As a matter of fact, Salesforce.com would potentially enjoy an
enlarged client base referred by partnering with these developers.
5. Consultants - A number of large companies employ external IT consultants to assist their IT
strategies and projects. A trusted consultant would have considerable influence on software /
platform adoption and implementation. Consultants have established relationships with the major
software companies they work with. They will have to see justifiable incentives in return for turning
their back at their old friends and turning to a new relation such as Salesforce.com.
Salesforce.com was essentially replacing a customized product that guarantee long-term consulting
fees and client dependence with a generic and simple service requiring less consulting hours. How to
address these concerns and how to get consultants involved in designing and marketing is critical to
Salesforce.com.

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Section 3 What happened and why

Explaining Salesforce.coms behavior:
In this section we will attempt to explain Salesforce.coms behavior at its inception when it was trying to
develop the SaaS business model and then explain its behavior today in terms of its offerings and
strategic positioning. We will also briefly discuss Salesforce.coms competitive behavior during this time
as well.

Historical performance:
In understanding Salesforce.coms actions in developing its business, it is very useful to first look back at
their historical performance both from a user base penetration and financial perspective. Historical
performance from these two perspectives gives us insights in to the efficacy of Salesforce.coms actions
within the ecosystem. Were they able to grow the software-as-a-service (SaaS) market? Were they able
to retain customers and become profitable?
In terms of user base penetration, Salesforce.com has shown tremendous growth with ~45% CAGR in
both subscribers and customers:

Exponential Salesforce.com Customer Growth

# of customers

100,000
80,000
60,000
40,000
20,000
1998

11

2000

2002

2004

2006

2008

2010

Exponential Growth in Subscribers

# of subscribers

2,500,000
2,000,000
1,500,000
1,000,000
500,000
1998

2000

2002

2004

2006

2008

2010

In addition, although not as impressive as the growth seen in user base penetration, gross profit growth
has also been strong with ~35% CAGR (using data since the company went public in 2005).

Gross Profit Growth

Gross profit in millions

7,000
6,000
5,000
4,000
3,000
2,000
1,000
2004

2005

2006

2007

2008

2009

2010

2011

2012

Through these two different lenses, it is clear that Salesforce.com has been successful at starting and
growing a software-as-service (SaaS) business model. The question then shifts to what did
Salesforce.com do over its 12 year lifespan to achieve such success?

Salesforce.com actions at inception:

When analyzing Salesforce.coms actions we found it interesting to understand Salesforce.coms
approach to developing their SaaS business model. At the time SaaS was not widely adopted or proven;
they basically needed to build out portions of the ecosystem to make it a success. Why did they start
with customer relationship management (CRM) and not another sub-market of the enterprise software
market? Why did they start when they did? Why did they invest so heavily in sales and marketing? As
software providers, why did they position themselves as anti-software?

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Starting off Salesforce.com had the idea of changing the enterprise software game with a new softwareas-a-service model. The old enterprise model was huge monolithic software with high installation,
maintenance and switching costs. The software was incredible complex, but as a result highly
customizable. Salesforce.coms idea was to be more customer-centric and provide customers with the
simplest experience, both within the software and out the software in how they interact with
Salesforce.com in terms of payment and user support. The thought was not everyone needs the
functionality and flexibility that a large sophisticated enterprise like General Electric needs. Nor should
lower tier customers have to subsidize such software for complex enterprises. This was the fundamental
value proposition Salesforce.com was bringing to the table to customers. You get a simple, functional
piece of software with no required infrastructure other than internet connectivity and PCs for
employees.
This value prop became and remains the mantra of their organization: The End of Software and was
marketing widely using the graphic to the right. To fulfill their value proposition, they introduced a
simple monthly cost per user model. Very easy for customers to project total
cost and also removed the burden of any fixed costs which tend to be quite high
for normal enterprise software. Simply put this new pricing model empowered
the customer and took power away from the software providers. Salesforce.com
also recognized that this was a battle for the hearts and minds of customers. The
SaaS model would redistribute risk within the adoption entire adoption chain. Customers would no
longer be committing to a multi-million dollar long-term commitment with software providers. Instead
the risk would be shifted to the software providers and the service sector built around it (consultants,
developers, etc.). Salesforce.com understood that this was a new value proposition and that they would
need to convince customers to try SaaS out and ultimately win them over. As a result they invested
heavily in sales and marketing (conferences, sales force, advertising in journals) to drive customer
adoption. Even today, sales and marketing plays a huge role at Salesforce.com; ~48% of revenue is
invested in sales and marketing.
Although their No Software marketing mantra sounded like a war on all enterprise software,
Salesforce.com took a niche approach to developing the SaaS model. Instead of tackling the broad
software market with a suite of enterprise software, Salesforce.com focused on a small, well defined
market where there was less competition, but strong market demand customer relationship

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management. The questions is why CRM and not some other market like timekeeping or databases and
why 1999?
Salesforce.coms CEO Marc Benioff, as a 16-year Oracle executive alum, was very familiar with the
different submarkets within the enterprise software market. Furthermore his former colleague at
Oracle, Tom Siebel was the CEO of Siebel Systems the current leader at the time in the CRM space. Marc
knew Tom relatively well and as a result believed he could develop a plan to eat away at Siebel Systems
enterprise market leadership. Marc also felt that in terms of the ecosystem the minimum viable
footprint for the SaaS ecosystem was in place in 1999. On a side note we believe Salesforce.com was a
few years early in attempting to develop the SaaS market. We believe because they were early,
Salesforce.com had to invest excessive amounts of capital into sales and marketing.
In addition, Siebel Systems market position was far more assailable then other software markets. For
example the Enterprise Resource Planning (ERP) market was dominated by two huge players: SAP and
Oracle. At the time Larry Ellison, the CEO of Oracle, was a significant investor in Salesforce.com and sat
on Salesforce.coms board (he was Benioffs mentor until recently when the relationship soured). At the
time, this made directly attacking Oracle less likely. But we believe this was not the only core reason.
The ERP market was a huge market in terms of total dollar of revenue ($20B); incredibly attractive even
if you could just get a few percent of market share. The problem was most key customers already
implemented their ERP systems with tremendous built in switching cost. As a result, most growth was in
the market was in maintenance revenue and not new subscribers/licenses. As can be seen in the
Forrester forecast around the time Salesforce.com was choosing a market segment to enter, forecasted
maintenance growth was ~10% CAGR vs. essentially stagnant growth in new subscribers/licenses.

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As a result, Saleforce.com looked for a market where they felt that customer switching costs would not
be a huge determinate in gaining market share. The CRM market fit the bill for a few reasons. First, at
the time, it was relatively nascent and as a result many customers were just beginning to look into
implementing a CRM system (no legacy system). And secondly, CRM was a less risky proposition to try
out as well. SaaS was a new model and enterprises are generally slow to adopt new unproven
technology. By selecting CRM, it was a functionality that an enterprise could try out in the SaaS model
without exposing their critical IT systems like ERP software.
We believe Salesforce.com made very effective use of partners here. As discussed earlier, they
partnered with organizations like Informatica which already had a substantial customer base. Leveraging
the relationship Informatica and other partners had with their respective customers, Salesforce.com was
able to get their foot in the door with their SaaS CRM offering. In time, SaaS credibly would grow with
each customer success and heavy advertising. As a result, new customer adoption continued to growth
throughout Salesforce.coms history. As they built credibility with customers they also began providing
tools and custom features that appeals to other adoption chain players like developers and consultants.
With customers hiring developers with Salesforce.com experience on their resumes and asking
consultants for SaaS products, these adoption chain participants were slowly influenced by customers
into developing SaaS competencies. We believe this was Salesforce.coms specific strategy. This is why
they spend so much money winning customers because they believe the customers would then push
SaaS up the adoption chain to developers and consultants.

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To summarize, we believe Benioff selected the CRM market as his first endeavor in proving the SaaS
business model for a few core reasons which he hoped would lead to the success of the SaaS model and
ultimately the success of Salesforce.com:

Benioffs intimate knowledge of the CRM space and his core rival Tom Siebel

Ability to avoid directly competing with the big players

Availability of receptive partners (including large future competitors like Oracle)

The low risk value prop Saleforce.com could offer to customers in the CRM space

Perceived minimum viable footprint for success in place

Ultimately, Salesforce.coms goal was not to solely dominate the SaaS CRM market; it was far grander.
Saleforce.com wanted to become the company associated with the anti-software movement. They
wanted to kill the old monolithic software model and replace it with SaaS. Furthermore they wanted to
become the leading provider of enterprise SaaS (essentially displacing SAP and Oracle). CRM gave
Salesforce.com an entry point to start building relationships with customers, building out the ecosystem
(staged expansion) necessary to make the SaaS model for all enterprise software viable all the while
developing SaaS expertise. Today, they compete directly with Oracle and SAP by offering multiple SaaS
products like database platforms like Heroku and database.com and communication tools like Chatter.
Interestingly, a lot of the work Salesforce.com did in the early 2000s with their CRM offering was to
build credibility with enterprise customers in the SaaS model such that they would be willing to adopt
the SaaS when the time came to replace their existing systems. This essentially was addressing customer
adoption chain risk. But the reality is that credibility is reusable by their core competitors; Oracle, SAP,
and Microsoft. We will discuss this further in the following section discussion competitive actions, but it
is difficult to see a distinct advantage Salesforce.com has developed over the past decade that will
enable them to become the leading provider of SaaS enterprise software.

Salesforce.coms actions today:

Today, Salesforce.com CRM offerings target the whole spectrum of enterprise software users in terms of
size. Sales Cloud, Salesforce.com cloud sales management application, comes in five progressively rich
editions, with each one offering some added features on top of the features of the previous one.
However, not all of them are available to enterprises that need more than five licenses; that way and
through the bundling of various Sales Cloud services Salesforce.com pushes its customers to the more

16

expensive, and also more powerful, solutions. Similar is the case with Service Cloud, Salesforce.com
CRM application, with clients paying an increasing amount for customization tools and custom
applications.

With regard to its Service Cloud and Sales Cloud solution, Salesforce.com is currently enjoying the part
of the S-curve where they can charge more for additional characteristics:

As mentioned earlier, Salesforce.com started its endeavor in cloud computing based enterprise
solutions through customer relations management (CRM) applications; it was a low-risk decision and
quite obvious one considering Salesforce.com founder and CEO experience in CRM solutions. The
company seems to be aware of the above S-curve that many products face and instead of just adding
characteristics in its solutions that sooner or later it will not be able to charge for, it is moving in the
direction of replicating this S-curve by adding new solutions addressing other business problems
rather than just elaborating on the solution of problems/needs already addressed; and it does expand to
a number of business services in a variety of ways.

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According to Salesforce.com CEO Marc Benioff, companies want to automate themselves and cloud
computing solutions is the way to do it, while being huge money savers. Salesforce.com strategy is
based on the premises that a) forced by customers and employees that are social-media active and by
ubiquitous mobility companies seek become social enterprises and incorporate social networking
forces, and b) that Salesforce.com can provide this in an easy, low cost and green way.
So far Salesforce.com strategy was focused on building new solutions: not necessarily new in the
problem they address, CRM for example existed before Service Cloud, but new in the approach and the
solution delivery. In that light, Salesforce.com is building strategic alliances with other companies to
expand its offering portfolio but also enrich the characteristics of the existing products; for example it
agreed on an alliance with Intuit to build CRM tools in Intuits Quickbooks platform a move that
potentially gives Salesforce.com access to Intuits four million customers. In another example,
Salesforce.com agreed to work with Adobe on rich-internet applications and with Dun & Bradstreet to
provide its clients with corporate information.
Salesforce.com has the stated purpose of becoming a platform on which applications of other providers
will be docked to provide enterprise solutions in the cloud, as they believe that no one company can
solve all problems by itself, providing a black box solution (this is a reference to Huawei which
develops everything, from software to hardware to applications in house). For Salesforce.com
customers, the benefits are obvious:

They share infrastructure and thus they forgo big capital expenditures for software, hardware and
data centers,

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They can have customized applications for their needs and it is easier to build specific applications
under one platform, instead of having to make various stand-alone applications talk to each other,

They can use a tested platform that works immediately instead of highly customized platform like
SAPs that can take very long to be implemented and may end never running.

This attack on SAP products, as well as on Microsoft and Oracle, constitutes Salesforce.com second
strategic pillar: starting offering solutions that build on existing platforms leveraging carryover.
Specifically, the company announced that its force.com product could be integrated on SAP platforms,
using data produced by SAP to implement force.com applications. As Benioff said, Salesforce.com
products can lie on top of SAP systems, launch new apps within those systems or even replace them.
Given the discussion above, one could classify Salesforce.com innovation as radical, in the sense that, by
incorporating social network components and building monitoring and management tools about them,
it adds new context to management information systems, overturning the, until now, existing
concepts. Furthermore, Salesforce.com solutions change the relation between the components of MIS
integrating various solutions under one platform.

Incremental
innovation

Modular
innovation

Architectural
innovation

Radical
innovation

Those new product offering constitutes another change for Salesforce.com strategy. While so far the
company provided with front end solutions for sales and client relationship management and social
enterprise solutions, Salesforce.com now moves on to offering back end solutions. The cloud
computing solutions of the company will analyze data and provide information about traditional ERP
issues, from inventory planning to costing analysis. This can be an effort by Salesforce.com to secure for
itself the role of provider of a whole spectrum of enterprise software solutions. Without big advances in
technology, the company extends the ecosystem, by adding social network dimensions and, thus,

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welcoming Facebook and Twitter in the enterprise solutions sphere. In a raw analogy, Salesforce.com
acts like iMotors, in that it reduces the risk in various points of business data handling and processing.
For example, the compatibility among the different parts of a company-wide Salesforce.com solution is
guaranteed and, with the fee per user model and the various versions available, it comes customizable
to the size and the needs of the client.
What is interesting about Salesforce.com current offerings is that although it provides with simple, easy
to implement solutions, if companies have special needs or need to adapt Sales Cloud or Service Cloud
to their needs, they are charged significantly more. And they are not charged one-off, as would be the
case with the implementation of an ERP system by SAP for example but, based on the fee per user per
month; they will get to pay for as long as they use the specific platform. That way Salesforce.com
increases the switching costs for customers, who are now using and implementing a platform with
customized or even tailor-made elements. Although the cost is seemingly variable, there are consulting
and implementation fees that make the whole structure look a lot more an SAP provided service.
Salesforce.com model is not without challenges. Coca Cola was the first company to sign a social
enterprise licensing agreement but Alan Boehme, the companys CTO said he did not want to be locked
into a per-user model in signing a social enterprise licensing agreement with Salesforce.com. With
700,000 colleagues and partners around the world, "We need a lot of flexibility, agility," said Boehme.
"To be locked into per-user [pricing] doesn't work for us anymore." Similarly, there have been questions
about integration with current platforms: Burberry's Ahrendt says, "The biggest fear is we've all made
heave investments on the back end of the business [in applications including those from SAP], so when
you take what Saleforce.com is offering, how do you plug that into your existing infrastructure. That
infrastructure doesn't go away."

Competitive Actions:
Historically, the Salesforce.com has been an underdog competing against tough competitors who have
more resources from funding to talents and better brand name. If we take a look at the competitors of
Salesforce.com, the key competitors are enterprise software developers and other on-demand CRM
platform. The competitors include high-tech giants such as Siebel (now owned by Oracle), Microsoft and
SAP. The challenges that Salesforce.com are facing include:

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To Burberry's Ahrendt comment, these competitors can leverage their self-developed software, e.g.
Microsoft Great Plains, SAP ERP, and their well-established customer relationships to defend their
market share. For example, SAP and Oracle is already installed is the major of large and medium
size organizations giving them access to the core of the CRM market.

These competitors can simply vertically acquire small, successful CRM developers, create synergies
through the acquisition and quickly enter the market with a strong position. A good example is
Oracle. In 2005, Oracle acquired Siebel (one of the first generation and former leading CRM
provider) for $5.8 billion and created Oracle Siebel. Also about a month ago, on Oct. 24, 2011,
Oracle paid $1.5 billion for RightNow Technologies (a major competitor of Salesforce.com in SaaS
market). The acquisition will bring Oracle a mid-market CRM solution and help Oracle better
compete with Salesforce.com in small and medium account.

It seems like the large players response has been to take a wait and see approach letting Salesforce.com
develop the SaaS market and then buying their way in and leveraging their existing customer base to
grow their own SaaS business while attempting to protect their existing high margin business.
In terms of competitive positioning, we worry about Salesforce.coms future. They have developed a
strong brand, but it is a brand strongly associated with just CRM. They have also had the opportunity to
develop expertise in SaaS by spending the last 10 years working solely on it but we believe the larger
competitors can buy their way into that. One key advantage Salesforce.com has is a compatible legacy
(what we call ecosystem carryover). All their customers (a substantial number today) are SaaS ready
and all of their products integrate well into the SaaS paradigm. Competitors like Oracle and SAP are
saddled with very complex software that was never meant to fit into a SaaS model. Nonetheless, looking
back to 1999, Salesforce.com has been successful in developing SaaS as a viable model for enterprise
software.

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Section 4 - References
1. http://it.toolbox.com/wiki/index.php/Salesforce.com:_An_Evaluation
2. http://www.pcworld.com/businesscenter/article/159872/intel_eyes_cloud_computing_with_new_
hardware_software.html
3. http://www.informationweek.com/news/hardware/data_centers/217800645
4. http://www.Salesforce.com/company/news-press/press-releases/2001/01/010115-B.jsp
5. http://www.continuityinsights.com/cdn/cms/uploadedFiles/C_13%20Wenk.pdf
6. http://www.Salesforce.com/company/milestones/
7. http://www.slideshare.net/sgreene/stanford-7822999
8. The NIST Definition of Cloud Computing Authors: Peter Mell and Tim Grance Version 15, 10-7-09
9. http://en.wikipedia.org/wiki/Salesforce.com
10. http://seekingalpha.com/article/255025-increase-in-salesforce-com-s-customer-base-translatesinto-revenue-growth
11. http://www.cio.com/article/17634/Salesforce.com_Outages_Raise_IT_Concerns
12. http://www.proquestit.com/our-services/cloud-adoption
13. http://sandhill.com/article/salesforce-coms-new-data-residency-option-dro-will-widen-door-forcloud-adoption/
14. http://redmonk.com/sogrady/2010/12/13/salesforce-and-heroku/
15. http://www.Salesforce.com/services-training/training_certification/consultant/
16. http://crmsearch.com/salesforce-competitors.php
17. http://www.zdnet.com/news/long-road-for-siebel-ends-at-oracle/144583
18. http://www.destinationcrm.com/Articles/CRM-News/Daily-News/SaaS-CRM-Deployments-FuelCompetition-75843.aspx
19. http://gigaom.com/cloud/what-does-oracle-see-in-rightnow-technologies/
20. http://www.Salesforce.com/company/news-press/press-releases/2011/03/110303.jsp
21. http://www.justice.gov/atr/cases/f204400/204481.htm
22. http://www.wired.com/wiredenterprise/2011/10/marc-benioff-larry-ellison/
23. http://en.wikipedia.org/wiki/Salesforce.com
24. http://ycharts.com/companies/CRM/historical_data/gross_profit_ttm?start_month=11&start_day=
5&start_year=2000&end_month=11&end_day=5&end_year=2011
25. http://360.datamonitor.com/Product?pid=5ADA9CC6-E1F7-4E66-A26F638295E2E84B&view=History
26. http://www.nytimes.com/2005/09/13/technology/13oracle.html
27. http://allthingsd.com/20110520/marc-benioff-on-salesforce-coms-monster-quarter-and-the-roadahead/
28. http://about.intuit.com/about_intuit/press_room/press_release/articles/2011/IntuitSalesforceAnno
unceStrategicAlliance.html

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29. http://www.cioinsight.com/c/a/CRM/Marc-Benioff-Salesforcecom-CEO-Warns-of-an-EnterpriseSpring-573025/
30. http://www.eweek.com/c/a/Cloud-Computing/Benioff-Unfazed-by-TelcoBased-Cloud-AppCompetitors-852413/?kc=EWKTS09012011AC
31. http://www.Salesforce.com/solutions/
32. http://blogs.Salesforce.com/product/2011/10/sap-meet-forcecom-creating-a-social-enterprise-byunlocking-the-sap-core.html
33. http://www.Salesforce.com/eu/crm/editions-pricing-service.jsp
34. http://www.asugnews.com/2011/10/26/the-force-com-is-with-sap-is-sap-with-the-force-com/

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