By any measure, Salesforce seems to be on the right track. Its most recent earnings report was another huge win, as it hit $US1.44 billion in quarterly sales and $US6.5 billion in full year estimates. Those numbers sent its stock to record-high levels of over $US68 a share.
But every company goes through growing pains, and a recent report by Forrester Research suggests Salesforce is dealing with its share.
Despite higher customer satisfaction ratings in many areas than competitors Oracle and SAP, the report says Salesforce is facing two growing concerns:
Some clients are complaining about its pricing model. The report says Salesforce customers see a lot of hidden costs that could turn them away from renewing their contracts. For example, to create a sandbox environment, a popular feature for testing applications, Salesforce charges an additional 15% or more on top of its annual subscription fee. There are extra charges for additional integration and API usage too, Forrester says.
In fact, in a recent Forrester survey, 52% of the respondents picked “high cost of ownership over time” as the one thing they most dislike about Salesforce’s Sales Cloud, followed by “rigid and inflexible pricing model” at 42% of total. As a result, 43% of the respondents said they will “renegotiate our contract with Salesforce when it comes up for renewal,” while 8% said they will move to a different vendor.
It isn’t doing a good enough job integrating its marketing product. The report also claims that Salesforce is having trouble converting its biggest set of customers, who use its sales and customer service products, to its newer marketing product, which came into the company through its $US2.5 billion acquisition of ExactTarget in 2013. More than a quarter of Salesforce’s sales come from its core products, Sales Cloud and Service Cloud, while Marketing Cloud makes up only about 10% of its sales.
Part of the reason for the disparity is that Salesforce hasn’t fully integrated its marketing and sales products, the report says. They have different user interfaces and customer databases, leading to higher levels of customer dissatisfaction. Almost half of the survey respondents (47%) said they plan to renegotiate their Marketing Cloud contracts when they expire (versus 43% for Salesforce overall) while 20% of the Marketing Cloud users say they will move to a different SaaS vendor (versus only 4% for Salesforce overall).
That’s not to say Salesforce is in serious danger. The survey was based on a small sample size — only 105 Salesforce users — and a lot of them expressed high satisfaction in other areas, especially compared to other big companies like Oracle and SAP.
But these are big issues as Salesforce continues to expand its business, and as Forrester points out, Salesforce will have to address them to join the ranks of one of the “big four” enterprise software companies: Oracle, SAP, IBM, and Microsoft.
The report concludes that the most likely path for Salesforce to take is to continue increasing the number of apps built on top of its platforms, especially on the sales side, including its latest product in data analytics. This could create more pricing pressure for customers, but overall would create more cross-selling and upselling opportunities for Salesforce to reach $US20 billion in revenues, it says.
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