Salesforce.com: enterprise-minded, but SMB at heart

A couple of analyst firms - Gartner and Nucleus Research - recently commented that Salesforce.com had a limited value proposition for the complex needs of large enterprises. They further added that over the long term, this limitation would lead to a higher cost of using salesforce.com compared to clients owning their own software infrastructure.

While I remain buoyant about salesforce.com in the SMB segment, as far as its current offering is concerned, the analysts have a valid point. And there's an analogy I like to cite from another old time on-demand market that substantiates the analyst's views.

Consider the Centrex market for hosted communication solutions. Centrex is essentially the name for hosted PBX technology, and has been around for around 25 years. Its a substitute for buying full featured PBX infrastructure, and offers a distinct value proposition, albeit a limited one, attractive to many small and midsize businesses (SMB's) and branch offices of larger companies. Instead of buying and setting up their own PBX infrastructure, Centrex phone line users can subscribe to Centrex services for a monthly fee. Centrex has a mature market, with a share of around 12% out of the total market for business phone lines, and this has been quite stable for several years.

What is important to note about Centrex services is that their user surveys reveal 2 key findings - a) Centrex users are just as likely as existing PBX users to evaluate the purchase of a PBX system, and b) 70-80% of Centrex users make the evaluation each year whether they should buy their own PBX infrastructure or continue to use the hosted Centrex service.

The Centrex market and its user behavior point to the challenges of churn and long term growth saturation that salesforce.com will probably have to address at some point of time in their core SMB market. But SMB's are a huge and underpenetrated segment - and the company can very credibly claim a lot more of that segment. Their model of software as a service is simple, powerful, 'platform' minded, scalable and affordable enough for them to serve SMB's on a global scale, and continue to fuel their growth for the next several years.

None of that still makes salesforce.com (atleast so far) the right fit for the complex, large scope, usually highly customized, long term needs of large enterprises. The Merill Lynch deal last week for a 5000 user subscription for salesforce.com does not make it any more so. Neither does Accenture's recent endorsement. And besides, there really are only a couple of thousand enterprises on the one hand that would classify as large, and millions of SMB's on the other hand that salesforce.com can effectively serve.

I could certainly guess the reasons why, even with the success they're having, they appear shy about their bread-and-butter market and more eager to embrace the large enterprise. Maybe I'd even cheer them more if they proved me wrong on that. But it's a hard one - would you rather be richer or happier?