Money Matters - Simplified

May the (sales)Force(.com) Be With You

 A long time ago in a galaxy far, far away, if an organization wanted to streamline its sales pipeline or manage its collective company Rolodex, it purchased a traditional piece of customer relationship management (CRM) software. This software came with an aggressive salesperson, was shipped in a box, installed on a server, and managed by someone whose career it was to keep that server and the software cool, safe, updated, and bug-free -- at least until the next CTO arrived, at which point you repeated the process. This is what we nerds call software as a product or SaaP.

 

 Welcome to Cloud City

The next generation of software is different ... wildly different. It's "SaaS," or "Software as a Service" -- no servers, no installation disks, no hassles. Your company's data resides on a shared server that is managed by the provider and accessed through a browser from almost any computer in the world. The industry leader in the SaaS CRM universe is cloud-computing giant salesforce.com (NYSE: CRM).

Use the Force, Luke ... and Dell ... and Starbucks ... and ...
With more than 80,000 customers that include DellStarbucksKelly Services, andCanon, Salesforce is the undisputed cloud-computing CRM champion. But it's not just the big names that use Salesforce. Their hefty revenues are split evenly between large enterprise clients, midtier companies, and smaller organizations. And it's no wonder: The cost of entry is just an inexpensive single seat license and access to a browser.

The next generation
While Salesforce made its mark with its low-cost, easily implemented CRM sales software, they know that to grow, they need a product suite that grows with their clients. They start their customers on Sales Cloud, their flagship product (think Rolodex with a calendar on steroids). After demonstrating ease, value, and efficiency, they then ask clients to add a service product, an intracompany collaboration product, and a platform to allow for third-party application development (think the Apple app store). While not quite the "give away the razor and sell the blades" model, Salesforce's low-cost entry-level product and subsequent up-sells, combined with their automatic monthly renewal model, allows for a robust customer lifetime value.

Threats from the Death Star
Salesforce stands in stark contrast to traditional providers such as Oracle (Nasdaq: ORCL),SAP (NYSE: SAP), and Microsoft (Nasdaq: MSFT), all of whom still largely operate in the software-as-a-product world. That noted, the adherence to old-school technology isn't all bad for business -- many firms remain skeptical about the cloud model, preferring full oversight of their software and servers. The traditional players also offer a level of customization and personalization not found in the Salesforce product line. Finally, there is nothing to stop any of these giants from launching their own full-scale cloud models. For example, while Larry Ellison may deride the company in his many rants, Oracle has recently upped its presence in cloud computing.

Beware of the Dark Side
While getting started with Salesforce software can be inexpensive, its stock price isn't. With a trailing P/E of 205 and a $14.9 billion market cap against $1.46 billion in sales, shares don't come cheap. Buying shares at today's prices is a bet that we are at the forefront of a cloud-computing revolution, and that salesforce will continue to lead that revolution through new products, markets, and clients. Salesforce.com may be a cloud-computing leader, but that leadership doesn't come cheap.

© 2010 UCLICK L.L.C.