Salesforce.com: From SaaS Pioneer to Platform Play
Salesforce pioneered a new business and technology model that allowed it to make huge waves in the established CRM market, delivering its internet-based SaaS product to customers around the globe for a monthly subscription fee.
The leading provider of cloud-based customer and collaboration relationship management software, Salesforce.com is now the fastest growing top 10 software company in the world. Founded in 1999 as an alternative to legacy on-premise CRM software solutions (including Oracle, SAP, and others), Salesforce has since been named to the top of Forbes’ Most Innovative Companies list a whopping four times. At a very basic level, Salesforce creates value for its customers by delivering a system to monitor interactions with both current and prospective clients. But the value of Salesforce extends far beyond its standard CRM offering. The truly disruptive (and, accordingly, most value-creating) aspect of Salesforce comes from the company’s ability to deliver an easy-to-use, intuitive solution that 1) eliminates the need for enterprise customers to install and maintain their own technology infrastructure, 2) can be deployed rapidly and at low cost, and 3) can be easily integrated with other software applications.
Salesforce pioneered a new business and technology model that allowed it to make huge waves in the established CRM market, delivering its internet-based product to customers around the globe for a monthly subscription fee. The now prolific software as a service (SaaS) model was game-changing for enterprise (and, more recently, consumer) software: large, upfront, multi-year licensing fees and endless implementation timelines were suddenly a thing of the past for Salesforce customers, who could be up and running with the product in a matter of days. Ultimately, Salesforce’s mechanism for capturing value also created value for its customers, who had previously paid millions of dollars and endured multi-month installations before they could actually go live with new software.
In pricing its Sales Cloud CRM product, Salesforce employs indirect price discrimination. Beginning with its standard “Group” offering for only $25/user/month, the subsequent three product tiers (Professional, Enterprise, and Unlimited) offer an increasing number of features, functionality, and customizability, as outlined in the attached screenshot. With the lowest-end version of the product restricted to only 5 users, the vast majority of enterprise customers will ultimately purchase or upgrade to a higher-priced offering.
Salesforce’s value capture strategy has evolved with the expansion of its product line. As the company went beyond sales force automation and CRM to offer online support and help desk, digital marketing, and analytics services, it adopted a mixed bundling strategy. The stand-alone Unlimted versions of its Sales and Service cloud offerings, for instance, are priced at $250 and $260/user/month, respectively. However, customers can purchase the bundled offering (with bonus “Performance” addition features) for just $300/user/month. Since the marginal cost to Salesforce of an additional user is quite low, by leveraging the complementarity of these products, Salesforce is able to capture some additional consumer surplus and create cost savings through the inherent economies of scope.
Most recently, Saleforce has begun to shift its strategy from product builder to platform provider. Through its application marketplace, AppExchange, Salesforce is using its CRM customer base as a data source, opening up its APIs and allowing third-party developers to build enterprise apps on the company’s Force.com, Heroku, and Salesforce1 platforms. By starting as a single-sided product and building a large (and rapidly growing) customer base, Salesforce avoids the chicken-and-egg dilemma that plagues most early-stage two-sided marketplaces, and reaps the rewards of strong network effects. The platform play creates additional value for Salesforce’s enterprise customers by allowing them to fill product gaps and address key pain points through integrated, “plug-and-play” solutions (of which the AppExchange now offers thousands). At the same time, Salesforce has positioned itself to capture value from both sides of the marketplace by charging platform license and listing fees to developers, who in turn are able to attain greater revenue growth than they would have had such a platform not facilitated such easy access to enterprise customers. By turning the corner from a single-sided application to a multi-sided platform, Salesforce has reduced the threat of becoming just another legacy CRM vendor, and paved the way for years of future growth.