Salesforce and their Blue Ocean Strategy

Former Oracle executive Mark Benioff created a hosted on-demand customer relationship management (CRM) solution called Salesforce.com in 1999. He pioneered the concept of delivering sales, marketing, and customer service applications, via a simple web site.Marc Benioff is chairman and CEO of Salesforce.com. A former Oracle executive, he founded the company in March 1999 with a vision to create an on-demand customer relationship management (CRM) solution that would completely force the industry to rethink its go to market model and replace traditional enterprise software technology. Benioff is now regarded as the leader of what he has termed "The End Of Software," the growing belief that on-demand applications can democratize CRM (and possibly other applications in the future) by delivering immediate benefits to companies of all sizes at reduced risks and costs.

Under Benioff's direction, Salesforce.com has grown from a groundbreaking idea into a publicly traded company that is the market and technology leader in on-demand CRM. For his contributions both in computing and the community, the Software Development Forum — the leading source of information and education to the technology community — has named Benioff a Silicon Valley Visionary.Its hosted software model has been a huge success with small and medium businesses (SMB) and mid market customers and has now begun making inroads into larger enterprises. Employee headcount was the typical basis by which the industry would segment their prospect base for CRM solutions.

The industry made an assumption, that number of employees would in turn imply a necessity for requirements that are more complex in terms of features and functions. However, by ‘de-segmenting’ the market and looking at exceptional buyer value across segments and looking for commonalities across non-customers, Salesforce created a new mass of buyers that traversed the traditional segment boundaries. Smaller buyers are trading upwards from ‘off the shelf’ shrink wrapped basic contact management solutions and larger companies are trading downwards from unwieldy deployments that required a heavy element of professional services and customisation that were a headache to roll out and administer. Admittedly, the Salesforce customer base of remains a fraction of Siebel's 3.4 million, but its business is growing much faster:Mark Benioff challenged the traditional ideas about typical software delivery prevalent in the traditional ‘Red Ocean’ of the CRM industry, which was overcrowded, highly competitive where it was becoming harder to differentiate competitive offerings. He challenged the traditional client-server approach to software delivery and pioneered exceptional buyer value. In a recent discussion session with the press and, analysts, he used a question about the recent Oracle/Siebel union as a launching point for an extended comic riff on "Oracle Cold Fusion," as he termed Oracle's plans to integrate its growing collection of applications on one architecture, code-named Fusion. "An Oracle sales rep shows up to sell you CRM -- which CRM?" Benioff quipped. "J.D. Edwards? PeopleSoft? Oracle Classic? YouCentric? Siebel, OnDemand or on-premise? They'll say, “Salesforce? They only have one CRM! How can they possibly compete?”The question remains how Salesforce achieved their success. To start, one needs to look back in time. In the 1990’s a group of companies offering hosted software across the internet floundered at the time markets were unsure of the security of business and personal data being transmitted across the Internet and second that the mindset of the time was that the web was too slow for running applications. By the end of the decade, those factors had improved. Alongside this background, the reader should be aware of the negative connotations surrounding the CRM client-server deployments and the negative press associated with lengthy deployments that were not always successful or delivering the anticipated business benefits. In essence, there was more hype than actual success.

One would wonder whether launching yet another CRM solution was a prudent business decision. Mark Benioff thought this an opportunity rather than a threat but to mitigate any risks timing was of the essence, since had he launched earlier the market may not have been ready for his new recipe. In keeping the first principle of Blue Ocean Strategy, Salesforce broke out of the conventional wisdom trap and pioneered to create a new value proposition that forced the market to wake up and listen.

Eliminate-Reduce-Create-Raise Grid Analysis

Eliminate
Which of the factors that the industry takes for granted should be eliminated?

· Requirement for client software on user desktops (vs. ubiquitous web browser)
· Necessity to develop of Proof of Concepts to show customers before they commit to order (vs quick online configuration and WebEx demonstration)

Reduce
Which factors should be reduced well below the industry’s standard?

· Expensive Direct sales force costs (vs.WebEx and telesales and word of mouth)
· Expensive Presales engagements prior to order placement (vs. good enough for a lot less)
· Long Sales cycles, typically 90 days or more. (vs. around 23 days using web method)
· Complex pricing structure - license, hardware, maintenance, support (vs. one fixes low cost per user per month inclusive)
· Development and maintenance of high-end product features that are not typically used (vs. less over engineered product focused on contact management and Salesforce automation- the bread and butter of CRM.)
· Customisation of products (vs. some IT admin configuration of products)Reseller channel model and thus increased costs to end users due to channel margin (vs. Web delivered direct model, which negates such a need.)

Create
Which factors should be created that the industry has never offered?

· Requirement for client software on user desktops (vs. ubiquitous web browser)
· Necessity to develop of Proof of Concepts to show customers before they commit to order (vs quick online configuration and WebEx demonstration)
· Free try before you buy (30 day trial)
· Low risk/low price rental model
· No need for expensive IT/admin staff to deploy and administer
· Manage once, deploy everywhere upgrades via web.

Raise
Which factors should be raised well above the industry’s standard?

· Deployment times - Reduce time to get customers up and running
· Develop a product extension marketplace, alongside technology partners. Similar to Amazon where you can view recommendations from industry peers. This recognizes the shift in power from sellers to buyers.




At the lower end of the market and at its most granular level, CRM software may compete with a rolodex (contact information), a drawing cabinet for case files (sales orders and documentation) and even an excel spreadsheet (forecasting/pipeline/contact database) to achieve the same purpose. Key features that prospective buyers may use to weigh up the alternatives include ease of use (rolodex), the need to get up and running very quickly, use of templates (e.g. by spreadsheets) for storing information such as contacts, sales forecasts, pipeline etc and a way to file associated documents relating to a process from lead-to-cash (e.g. with a filing cabinet) .

In understanding the trade-offs people would typically make between such substitutes, Salesforce was designed to be easy to deploy, use and quick to learn (unlike traditional competitors in the CRM industry). However, they went further than those substitutes and encapsulated sales and marketing ‘best practice’ in the business metaphors and processes used that were not offered by alternatives (spreadsheets do not typically come with a sales forecast template for example).

However, just looking at substitutes was not nearly what has made Salesforce a success. Some key insights from the six paths framework offer further insight into show how Salesforce were able to reconstruct market boundaries.Looking across timeHad Salesforce entered the market with their software on demand proposition earlier, they most probably would not have been successful, as has already been intimated. The market factors were not in place as bandwidths were too slow and reliability and security concerns were the order of the day. However as and when Salesforce saw that the market was moving towards thin client (web) adoption, that there was a clear trajectory which was irreversible, they mitigated their risks and made a big impact on the industry. The successful impact was not due to timing alone and Salesforce ensured that buyers received very competitive price points and less complex pricing structure, on a low risk rental model that did not include the necessity for buyers to invest in servers, professional infrastructure or customisation and maintenance. This new type of cost of to end users was only achievable because Salesforce was able to redefine it own business model in the industry and pass on savings to end consumers.

Had they wished to make incremental changes in the industry they would probably have offered a traditional client server model with some element of web-based access as well. Salesforce however did not go for that route. Instead, they decided to launch a new concept around the mantras of ‘success not software’ and ‘low cost, good enough’, which completely reinvented the way the industry thought about CRM and challenged the traditional value-cost trade-off that buyers were typically used to.Looking across complimentary products and servicesNo software solution exists in isolation, especially when larger company requirements are taken into consideration. It is common knowledge that Salesforce aspires to take on the traditional larger CRM players in their traditional marketplace - in the enterprise sector for corporate customers.

Whilst ‘low cost/good enough’ has sought to ‘de-segment’ the market place in the SMB and Mid market space, Salesforce have recognised that they needed to offer complimentary products and services if they are to attract the lucrative Enterprise customers and offer a well rounded complete solution. In September 2005, Salesforce.com added a new service that takes it closer to executing on the vision it now espouses – its AppExchange offering. This is a web-based portal giving companies access to a range of applications for on-demand use, ranging from financial and administrative applications, to applications focused on specific industries. The internet provides a more dynamic environment for accessing services than traditional means of distributing software.

The concept is similar to the online retailer Amazon.com, which fundamentally changed the way that people browse for books. In a high-street bookstore, people will spend time looking at a range of books, but the books that they are able to look through depends on the amount of time that they have available and their willingness to spend time going through all the different departments. At its online store, Amazon provides customers with the ability to search for books by title, author, or keyword and to compare books related to a particular topic in which they are interested. Amazon's service also recommends products to customers based on their buying history, search preferences or personal profile that they build. It is this same sort of idea that Salesforce.com has built with its AppExchange offering and allows recognises the balance of power has shifted to the buyer where can see a wide range of competing products and can read reviews from other users, as well as checking how other users rate additional products that extend the core functionality of Salesforce. What is more, this is a bonus for companies that do not wish IT budgets and resources to be tied up installing and managing software – especially those applications that are only used by a few people in the company. The growing ecosystem of global business partners dedicated to providing complementary products and services to Salesforce.com customers includes IBM, Microsoft, BEA Systems, Sun, TIBCO, PricewaterhouseCoopers, Miller Heiman, and many more.The question now remains for Salesforce is where to next. Other competitive players are starting to come downstream from their typical playing field in the client server space for Enterprises and offering on demand services for CRM. The main advantage for Salesforce.com favor is that of its brand equity and loyal customer following. However eventually, the company will most certainly have to value-innovate again. Perhaps moving from solutions for the front office to ones also intended for the back office. On the other hand, perhaps into trading exchanges where like- minded buyers and sellers come together to transact? What is clearly evident is that there is still a significant amount of non customers that represent a significant opportunity to Salesforce and my feeling is that they will continue their course for a while longer before they look at their strategy canvas again and try to value innovate a new divergent value line.