Case Study - Salesforce.Com: Cloud Services Go Mainstream

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Case Study - Salesforce.Com: Cloud Services Go Mainstream
Salesforce.com, one of the most disruptive technology companies of the past few years, has single-handedly shaken up the software industry with its innovative business model and resounding success. Salesforce provides customer relationship management (CRM) and other application software solutions in the form of software as a service leased over the Internet, as opposed to software bought and installed on machines locally. The company was founded in 1999 by former Oracle executive Marc Benioff, and has since grown to over 3,900 employees, 82,400 corporate customers, and 2.1 million subscribers. It earned $1.3 billion in revenue in 2009, making it one of the top 50 software companies in the world. Salesforce attributes its success to the many benefits of its on-demand model of software distribution.

The on-demand model eliminates the need for large up-front hardware and software investments in systems and lengthy implementations on corporate computers. Subscriptions start as low as $9 per user per month for the pared-down Group version for small sales and marketing teams, with monthly subscriptions for more advanced versions for large enterprises starting around $65 per user.

For example, the Minneapolis-based Haagen-Dazs Shoppe owned by Nestle USA calculated it would have had to spend $65,000 for a custom-designed database to help management stay in contact with the company’s retail franchises. The company only had to pay $20,000 to establish service with Salesforce, plus a monthly charge of $125 per month for 20 users to use wireless handhelds or the Web to remotely monitor all the Haagen-Dazs franchises across the United States.

Salesforce.com implementations take three months at the longest, and usually less than a month. There is no hardware for subscribers to purchase, scale, and maintain. There are no operating systems, database servers, or application servers to install, no consultants and staff, and no expensive licensing and maintenance fees. The system is accessible via a standard Web browser, with some functions accessible by mobile handheld devices. Salesforce.com continually updates its software behind the scenes. There are tools for customizing some features of the software to support a company’s unique business processes. Subscribers can leave if business turns sour or a better system comes along. If they lay people off, they can cut down on the number of Salesforce subscriptions they buy.

Salesforce faces significant challenges as it continues to grow and refine its business. The first challenge comes from increased competition, both from traditional industry leaders and new challengers hoping to replicate Salesforce’s success. Microsoft, SAP, and Oracle have rolled out subscription-based versions of their CRM products in response to Salesforce. Smaller competitors like NetSuite, Salesboom.com, and RightNow also have made some inroads against Salesforce’s market share.

Salesforce still has plenty of catching up to do to reach the size and market share of its larger competitors. As recently as 2007, SAP’s market share was nearly four times as large as Salesforce’s, and IBM’s customer base includes 9,000 software companies that run their applications on their software and that are likelier to choose a solution offered by IBM over Salesforce.

Salesforce needs to continually prove to customers that it is reliable and secure enough to remotely handle their corporate data and applications. The company has experienced a number of service outages. For example, on January 6, 2009, a core network device failed and prevented data in Europe, Japan, and North America from being processed for 38 minutes. Over 177 million transactions were affected. While most of Salesforce’s customers accept that IT services provided through the cloud are going to be available slightly less than full time, some customers and critics used the...
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