Accelerating its push to become the first $10-billion Cloud applications vendor, Salesforce launched new products that buttress its core offerings, while hiking prices and laying groundwork for next phase of growth.
Kicking off its fiscal 2017 which started February 1, the Cloud vendor that has revolutionized the customer relationship management apps market since 1999 with its on-demand sales force automation(SFA) engine is banking on a number of initiatives that could revitalize its namesake product.
Just a few days before this year’s NFL championship game in San Francisco, Salesforce tailgated the Super Bowl 50 party by lining up entertainers like Metallica as well as some of its key customers in the ballroom of the St Regis Hotel for the unveiling of its 2016 product roadmap as well as price increases of up to 25% of its Sales Cloud and Service Cloud, which together account for nearly three-quarters of its Cloud subscription revenues. The price increases will apply to three new editions: Professional, Enterprise and Unlimited.
It’s important to note that existing customers are grandfathered in and will receive all the new functionality automatically when the new editions become generally available in August. What’s not clear is whether and how much these customers will have to pay extra once their renewal kicks in, which could be years from now.
It also positioned Lightning, its latest Cloud platform designed to improve user experience especially for mobile devices, as the underpinning of its Sales Cloud as well as a host of new products from the recently-acquired Steelbrick for Configure, Price and Quote to Lightning Field Service for workforce management functions like scheduling and dispatching.
In order to reignite revenue growth for Sales Cloud, Salesforce is readying the three new editions for Sales Force Automation that are priced $75, $150 and $300 per user per month, respectively, amounting to price increases of somewhere between 15% to 20%, as shown in the following table.
| Comparing Salesforce’s Sales Cloud with similar offerings | |||
|---|---|---|---|
| Professional | Enterprise | Unlimited | |
| Salesforce Sales Cloud New Pricing | 75 | 150 | 300 |
| Salesforce Sales Cloud Old Pricing | 65 | 125 | 250 |
| Price Hike(%) | 15% | 20% | 20% |
| Oracle Sales Cloud | 100 | 200 | 300 |
| Sugar CRM | 40 | 65 | 150 |
| Zoho | 12 | 20 | 35 |
| Note: The three-tier pricing from other vendors is packaged as Standard, Premium, and Ultimate. | |||
| Source: Apps Run The World, February 2016 | |||
Steelbrick at $40 per user per month, Salesforce IQ Inbox at $25, which is a mobile app with email and calendaring features, as well as Wave App for analytics at $75 are all priced separately before customers can access them via Sales Cloud. With these options that complement Sales Cloud, the total cost climbs to $440 per user per month, or 76% above its current Unlimited plan, which is due to expire in the second quarter of calendar year 2016. If these options prove to be popular among Sales Cloud users, the company could start making them available as bundled offerings to boost cross-selling and upselling.
In addition to adding tremendous value to a 17-year old offering, the price hikes, first time in 14 years, are expected to jumpstart sales of Salesforce’s flagship product. While total Cloud product sales rose 24% in its third quarter of fiscal 2016, Sales Cloud went up only 10%. For Salesforce, the price increase is reflective of the new editions delivering more capability than what’s available in previous editions, while packaging Sales Cloud as a suite that comes with popular features without requiring customers to pay for them separately.
| Salesforce’s Cloud Subscription Revenues, By Product, $M | ||||||||
|---|---|---|---|---|---|---|---|---|
| 1Q15 | 2Q15 | 3Q15 | 4Q15 | 1Q16 | 2Q16 | 3Q16 | 3Q16 vs 3Q15 | |
| Sales Cloud | 577 | 610 | 625 | 631 | 630 | 671 | 689 | 10% |
| Service Cloud | 295 | 319 | 340 | 367 | 408 | 445 | 470 | 38% |
| AppCloud | 165 | 181 | 192 | 207 | 224 | 247 | 269 | 40% |
| Marketing Cloud | 111 | 122 | 132 | 140 | 143 | 158 | 169 | 29% |
| Total Cloud | 1147 | 1233 | 1289 | 1345 | 1405 | 1521 | 1596 | 24% |
| Source: Company Reports | ||||||||
The question is whether the initiatives are enough to revive the once sizzling growth of Salesforce after years of outperforming peers like SAP, Oracle and other in the enterprise applications market. The estimated 23% growth in Salesforce’s Cloud subscription revenues in fiscal 2016 was the second slowest in the company’s history, just a tad higher than what it experienced in the wake of the financial crisis during its fiscal 2010.
Speaking at its Capital Market Day event in New York last week, Bill McDermott, chief executive officer of SAP who at one point explored and then abandoned the idea of acquiring Salesforce, said his company’s Cloud applications revenues grew faster than those of Salesforce in the fourth quarter of 2015 even factoring out its December 2014 purchase of Concur for travel and expense management.
Meanwhile, Salesforce said it has seen an overwhelming response to the Lightning release, which has garnered more than 90,000 customers. Roy Ng, chief operating officer of Web Real-Time Communications(RTC) developer Twilio, a partner and a customer of Salesforce, has recently migrated to the Lightning platform primarily because of its mobile-centric user interface. Despite its use of Lightning, Twilio continues to run the familiar dashboard and other widgets that have been long-standing features of its Sales Cloud system.
That may well be one of the biggest challenges facing Salesforce as it aims to upgrade the look and feel for its users, while steering them to standardize on the new Lightning platform for their entire CRM systems and the underlying sales force automation processes, a prospect that is fraught with risks because of the heavy modifications that many of the 150,000+ Sales Cloud customers have relied upon for more than a decade. To address that issue, Salesforce reiterated that users can toggle back to a classic view of Sales Cloud if they want, and administrators can turn Lightning on for a subset of users — if they choose to do so.
Another engine that could help realize Salesforce’s goal of becoming a $10-billion company in the next few years may lie in Community Cloud, which competes with portal and team collaboration tools like IBM WebSphere and Microsoft SharePoint.
Since 2014, Community Cloud has been on a tear with firms like Farmers Insurance running the product to help build web communities for tens of thousands of its customers to access their policies, said Nasi Jazayeri, executive vice president and general manager of Community Cloud at Salesforce.
Salesforce Comes Full Circle
Marc Benioff, chief executive officer of Salesforce, echoed the view that the new initiatives reinforced the back to the core positioning.
During the launch event, Benioff made clear of his intentions of not letting Salesforce meet the same fate of other aging technology companies, especially those that are unable to reignite growth of their core products.
Equally important is Benioff’s determination to ensure that Salesforce’s first-mover advantage in the on-demand SFA market will not be a hard act to follow. Its support of veteran musicians like Metallica, which was scheduled to play at a sold-out concert on the eve of Super Bowl 50, underscores the fact that it’s possible for aging but still going strong rockers and software companies to rekindle the magic with their second acts.
