When a company is first in a market, it becomes a target. This appears to be what has happened to Salesforce.com, the startup that pioneered the software-as-a-service model.
A decade ago, Salesforce launched an attacked on the then old guard of the software industry (Oracle, SAP, Microsoft). It steadily built a business renting its software over the Internet instead of selling products customers install in-house. Quarterly revenue is now over $300 million.
After dismissing SaaS (for years), Oracle, SAP and Microsoft all mounted their horses and raced to develop offerings of their own.
The same rules of engagement are now turning against this leader. Software industry experts have begun asking whether its reliance on proprietary and expensive components (EMC storage gear, the Oracle database) creates a disadvantage when competitors, such as Zoho and RightNow, rely on open source
Zoho is quick to say yes. CEO Sridhar Vembu argues the differences create a “fundamental inefficiency” for Salesforce. This inefficiency is stubbornly reflected in the $65 a month price it charges, Vembu says in a recent blog post. Zoho charges $15, which includes a necessary mail account.
A CRM price promotion from Salesforce. Does it point to inefficiencies?
Maybe that is why Salesforce resorted to a $50 percent off promotion, he adds. “That gap, or may be I should call it the Grand Canyon (in price) is exactly what you have to resort to when you have a fundamentally inefficient business model that precludes you from dropping your price the honest way,” he says.
He could be right. While this disadvantage may take months, or perhaps years, to show up in business results, it is likely something Marc Benioff and crew are mulling. It is one thing to stay ahead with features and AppExchange partnerships. It is another to have cost on your side.
