What separates a child’s toys from an adult’s toys is typically the price of those toys. Salesforce customers should ponder that as we enter the 2H 2016.
Consider: SFDC has clearly concocted the winning recipe for Software as a Server (SaaS) and Platform as a Service (PaaS). Since its inception in 1999, the company has focused on growing market share and building its brand, and today reports more than 150K customers and estimated 2016 revenues approaching $7B.
Sounds pretty good – unless you’re an accountant or investor. While a growth juggernaut, SFDC has yet to report an actual annual profit. In reaching the age of majority, what changes does SFDC need to embrace to make the transition from youngster to adult?
SFDC has been very open about its trajectory and near-term vision. Shareholders have been told that SFDC will become a $10B company during the next couple of years, but this growth will have to occur in a very different environment. For one thing, new market growth will naturally slow beginning in 2017, which means that the road to $10B must be paved with additional dollars from the current SFDC customer base. Moreover, the SFDC $10B revenue goal and the turn to profitability will require sales and administrative expense reduction.
For customers, this strategy has two major implications.
First, we expect SFDC deal flexibility to diminish as we head into 2017. Indeed, a number of industry watchers believe 2016 might be the final year to negotiate new terms that would anchor attractive pricing for the next 3 to 5 years. Commitments will likely be fixed and expensive subscriptions will be locked in, with no opportunity to switch lower-cost options. Customers will also have fewer options to scale back unused subscriptions.
Second, the commitment to growing customer revenue means customers will be bombarded with aggressive pitches for new offerings, such as Marketing Cloud, Pardot and Wave Analytics. For traditional CRM offerings, expect smaller discounts.
Bottom line: if SFDC is a significant provider or a strategic partner, you should ensure that your negotiation posture is sufficiently robust to face off against the adult version of SFDC. Understand the potential velocity of your user growth and build that into your deal. If you’re not likely to curb your CRM appetite, think about how to cap your cost exposure during any renewal term. Finally, work to preserve and grandfather concessions achieved today in your subsequent renewal.
About the authorLouis joined the team in early 2014 after nearly 20 years with Microsoft Corporation. Louis has compiled a track record of Enterprise client success underpinned by customer focus, strategic thinking, organizational agility, problem-solving acumen and impactful knowledge transfer which has established his reputation as a Microsoft licensing expert.
About the author
Louis Pellegrino
Louis joined the ISG team in early 2014 after nearly 20 years with Microsoft Corporation. Louis has compiled a track record of Enterprise client success underpinned by customer focus, strategic thinking, organizational agility, problem-solving acumen and impactful knowledge transfer which has established his reputation as a Microsoft licensing expert.
During his time with Microsoft, Louis worked in both the Consulting Service Group as a Practice Manager and in the Worldwide Licensing and Pricing Group as a Director responsible for designing and negotiating Global Volume Licensing relationships. As a highly effective and influential communicator/negotiator, Louis has delivered consistent business results across both revenue and quality of service performance targets.
