Salesforce.com expands into tough CRM software market

The company, whose service allows salespeople to track leads and account information online, plans to enter the competitive market for customer relationship management software.

Mary Jo Foley
Mary Jo Foley has covered the tech industry for 30 years for a variety of publications, including ZDNet, eWeek and Baseline. She is the author of Microsoft 2.0: How Microsoft plans to stay relevant in the post-Gates era (John Wiley & Sons, 2008). She also is the cohost of the "Windows Weekly" podcast on the TWiT network.
Mary Jo Foley
3 min read
Salesforce.com's planned expansion into a new market may be its biggest challenge yet.

The company, which offers a service that allows salespeople to track leads and account information online, plans to enter the market for customer relationship management (CRM) software. On Monday, Salesforce.com plans to begin delivering online CRM services, which help organize and manage a company's customer service, sales force and marketing activities.

While in theory the move will expand the company's revenue base, Salesforce.com's timing may be off. On Tuesday, Wall Street analysts downgraded rival Siebel Systems, citing management changes and potential sluggishness in the CRM arena as causes for worry.

Though privately held Salesforce.com may be under less scrutiny, the market for CRM software--which Gartner expects will soon top $9 billion--is feeling the same pinch experienced by many areas of the enterprise software market.

Traditional CRM systems can be expensive and difficult to launch, and they require major business-process overhauls and training. Even for large and profitable companies, such challenges can be daunting, as many software makers have learned. Last week, shares of i2 Technologies tumbled after Nike said it would miss its third-quarter targets. The athletic shoe giant put partial blame on the supply-chain software vendor for its problems.

Salesforce.com is banking on its Web-only technology to help it win business. Essex, a $2.5 billion wholly owned subsidiary of John Hancock Financial Services, opted to go with Salesforce.com because its Web-based launch model means fewer chances for implementation woes.

"With the history of how technology is deployed here, there is no way I'd recommend we spend a half million (dollars) for software and another half million for development--and only then determine if we liked our (CRM) system," said Chief Technology Officer Mike Blumenthal. "And with technology moving so fast, you could get just six months out and find that the whole thing you were building was out of date."

Salesforce.com's "native Web" e-CRM implementation and relatively low entry costs are what sold Essex on Salesforce.com's technologies, which include sales force automation, marketing-automation and support-management tracking, forecasting, and reporting tools, Blumenthal said.

Salesforce.com is making its CRM products available only as an online subscription service, charging customers $50 per consumer per month. For that $50, customers will get the company's entire Web-based CRM suite, including its sales force automation wares, which previously cost $50 per consumer per month on their own. As a further incentive, Salesforce.com is offering customers a free one-year trial for up to five consumers.

"Our strategy is to expand the number of users in the enterprise, rather than to increase the price charged to our current users," said Salesforce.com CEO and former Oracle executive Marc Benioff.

Benioff added that Salesforce.com is mulling how and when to add Web-based enterprise resource planning (ERP) and manufacturing resource planning (MRP) wares to its stable.

Salesforce.com has adopted "the end of software" as its rallying cry. While the company does sell software, it only offers its software on a hosted basis.

Unlike some other hosted software sellers, Salesforce.com does not use application service providers as a conduit for its software. Instead, Salesforce.com uses Exodus Communications to host all of its software components as well as customers' back-end data.