Salesforce.com (CRM)

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With its software, Salesforce.com's customers can systematically record, store, and act upon business data. The company’s CRM services primarily focus on sales-force automation, marketing automation, and customer service and support automation. In addition, it provides consulting and implementation services and training. Geographically, the firm generates 78% of its revenue from the Americas, followed by the U.K. with 15%. It posted revenues of $497 million for the FY ended January 2007.

[edit] Company Overview

Business Model:

Salesforce.com revenues rose at a compound annual growth rate (CAGR) of nearly 112% from FY 01 to FY 07. Subscribers increased at a CAGR of almost 67% during this period. Operating margins turned positive in FY 04 after several years of investment and remained positive until FY 07.

[edit] Product Offerings

Salesforce.Com services mainly focus on the following functional areas within CRM:

• Sales force automation, marketed under the brand Salesforce SFA, enables salespeople to automate manual and repetitive tasks and provides them with data about current and prospective customers. For example, Salesforce SFA helps salespeople manage sales opportunities, leads, forecasts, process, and closed business by territories.

• Partner relationship management, marketed under the brand Salesforce PRM, provides channel managers with complete visibility into their company’s entire sales pipeline for direct and indirect channels. Salesforce PRM allows partners to access leads, collaborate on deals, and house information centrally.

• Marketing automation, marketed under the brand Salesforce Marketing, enables companies to manage marketing campaigns from initiation to lead development to sales. The application can measure the effectiveness of each campaign by quantifying the revenue generated as a result of specific marketing activities.

• Customer service and support automation, marketed under the brand Salesforce Service & Support, allows companies to interact with existing customers for a variety of service and support needs, such as requests for repairs, advice about products and services, complaints about faulty goods, and the need for additional goods and services. Using this product, customers can create a virtual contact center to support a wide range of customer interactions through voice, chat, email, and in-person interactions.

[edit] Direct Sales Model

While consistent information is not provided by the company regarding subscriber churn rates, monthly turnover was estimated by the company to be around 1% ^[2]. Salesforce.com sells its services primarily through a direct salesforce; as a result, sales and marketing is its largest expense, comprising about two-thirds of revenue.

[edit] Competition

Numerous competitors, including behemoths like SAP AG (SAP) and Oracle (ORCL), are gaining traction in software as a service. One of the closet competitor in Saas in ERP space is NetSuite (N) offering broad array of services to Small and Medium Businesses. Microsoft (MSFT), the biggest global software company, did not enjoy as much traction in this SaaS space, despite investing billions of dollars in its CRM suite development. However, in July 2007, the giant of software world launched a new attack on Salesforce by significantly lowering its price for its new-hosted CRM software services. This price war may do more harm to Salesforce than its rival because the firm is already struggling with low margins and a thin bottom line.

Moreover, the market for subscription-based software is still nascent, and many potential customers may prefer the traditional enterprise software installation. The company’s high dependence on third-party hosting companies to effectively manage, host, and deliver applications that meet customers' requirements also adds to the risk. Free CRM software alternatives from vendors like SugarCRM may offer greater value to many potential customers of Salesforce.com.

[edit] Market Profile

Worldwide revenues associated with on demand software delivery rose 20%, to $2 billion in 2005, and are estimated to increase to $4.6 billion by 2010, according to IDC, a market research firm. Customer relationship management is among the most developed software segments, and, in our view, is well suited for on demand delivery.We expect significant shifts in the profile of the on demand market in future years given our view of low barriers to entry and the greater participation we anticipate from traditional software vendors such as Oracle (ORCL: strong buy, $19), SAP (SAP: hold, $52) and Microsoft (MSFT: strong buy, $28).We also look for acquisitions of pure-play vendors.

[edit] Financial Trends

[edit] References

1. ↑ CRM FY2007 10-K, Selected Financial Data, p. 41
2. ↑ CRM: FY 2007 Q4 Earnings Call