READ THE BELOW CASE

SOFTWARE-AS-A-SERVICE GOES MAINSTREAM:

Salesforce.com has been considered one of the most disruptive technology companies of the past few years and is credited with single-handedly shaking up the software industry with its innovative business model and resounding success. This company provides CRM solutions in the form of 'software-as-a-service' leased over the Internet, as opposed to software bought and installed on machines locally. It was founded in 1999 by former Oracle executive Marc Benioff, and has since grown to 2,600 employees and earned $748 million in revenue in 2007.

Salesforce.com has over 43,000 corporate customers and well over 1 million subscribers.

Salesforce.com 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 capital investments in systems and lengthy implementations on corporate computers. Subscriptions start as low as $9 per month per user 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.

Salesforce.com implementations take 0-3 months. There is no hardware for subscribers to purchase, scale, and maintain, 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, and 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. Salesforce.com's solutions offer better scalability than those provided by large enterprise software vendors because they eliminate the cost and complexity of managing multiple layers of hardware and software.

Benioff believes that all of these advantages will inevitably lead to 'the end of software', or, more appropriately, a new future of software in which the software-as-a-service model will supplant the current model and become the new paradigm. However, it's still too soon to tell whether this prediction will turn out to be true. Salesforce faces significant challenges as it continues to grow and refine its business.

The first challenge comes from increased compe¬tition, 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 also have made some inroads against Salesforce's market share.

Analysts predict that Microsoft has a chance to compete with Salesforce by developing merely an acceptable on-demand CRM product, because of the average customer's already-established familiarity with Microsoft applications. Also, Microsoft plans to offer their product at half the price of Salesforce.com, using a tactic they have employed with great effect in other marketplaces to pressure their competitors. Salesforce.com still has plenty of catching up to do to reach the size and market share of their larger competitors. As of 2007, SAP's CRM market share was 25.7 percent, compared to only 7 percent for Salesforce.com. 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.com.

Another challenge for Salesforce.com is to expand its business model into other areas. Salesforce is currently used mostly by sales staff needing to keep track of leads and customer lists. One way the company is trying to provide additional functionality is through a partnership with Google and more specifically Google Apps. Salesforce.com is combining its services with Gmail, Google Docs, Google Talk, and Google Calendar to allow its customers to accomplish more tasks via the Web.

The partnership between Salesforce.com and Google represents a united front against Microsoft intended to cut into the popularity of Microsoft Office. Currently, Salesforce.com describes the partnership as "primarily a distribution deal", but it could grow stronger based on the idea that businesses prefer to manage CRM in one place. Salesforce.com and Google both hope that their Salesforce.com for Google Apps initiative will galvanize further growth in on-demand software.

Salesforce opened up its Force.com application development platform to other independent software developers and listed their programs on its AppExchange. Using AppExchange, small businesses can go online and easily download over 800 software applications, some add-ons to Salesforce.com and others that are unrelated. 24 Hour Fitness, the world’s largest privately owned and operated fitness chain, uses App Exchange along with Salesforce.com’s Enterprise edition for companywide salesforce automation and customer service. One of its App Exchange applications integrates Hoover’s database of up to 21 million companies and 28 million executives with Salesforce and another allow users to easily create and distribute on-demand surveys and response forms.

The problem is whether the audience for the App Exchange application platform will prove large enough to deliver the level of growth Salesforce wants. Some analysts believe the platform may not be attractive to larger companies for their application needs

A third challenge is availability. Salesforce.com subscribers depend on the service being available 24/7. But occasional outages have occurred making some companies rethink their dependency on software as a service. Salesforce.com provides tools to assure customers about its system reliability and also offers PC applications that tie into their services so users can work offline.

Sources: J. Nicholas Hoover, "Service Outages Force Cloud Adopters to Rethink Tactics," Information Week, August 18/25, 2008; Jay Greene, "Google and Salesforce: A Tighter Bond," Business Week, April 15, 2008; Mary Hayes Weier, "Salesforce, Google Show Fruits of Their Collaboration," Information Week, April 21, 2008; John Pailacto and Clint Boulton, "An On-Demand Partnership," eWeck, April 21, 2008; Gary Rivlin, "Software for Rent," The New York Times, November 13, 2007; Steve Hamm, " A Big Sales Job for Salesforce.com," Business Week, September 24, 2007; Mary Hayes Weier, "Salesforce.com" and Marianne Kolbasuk McGee, "Salesforce as B-to-B Broker," Information Week, December 10, 2007; Salesforce.com, Report on Form 10-K for the fiscal year ended January 31, 2008, filed with the SEC on 2/29/08

CASE STUDY problemS:

problem 1: describe the advantages and disadvantages of the software-as-a-service model?

problem 2: Discuss some of the challenges facing Salesforce as it continues its growth? How well will it be able to meet such challenges?

problem 3: What kinds of businesses could benefit from switching to Salesforce and why?

problem 4: Describe what factors would you take into account in deciding whether to use Salesforce.com for your business?