Undercutting Salesforce.com is an obvious ploy for Microsoft to attempt with its CRM Live product, so the pricing it announced today shouldn’t come as any big surprise. Salesforce.com has always priced at the high end of what it could get away with, and it’s benefitted from five years of being allowed to get away with it, plowing the proceeds into an astonishing sales and marketing drive that’s blasted revenues past the half-billion dollar a year mark.
Maybe salesforce.com’s investors aren’t ready to see the company’s margins put under pressure and its high-octane growth rates curtailed, but management has always known it could happen. Whether Microsoft’s pricing is enough to pile the pressure on is another matter. I’m not as convinced as fellow ZDNet blogger Josh Greenbaum that Microsoft is about to eat Salesforce.com’s lunch.
For one thing, I think Microsoft’s price points pitch CRM Live as a small to midsize business offering whereas Salesforce.com is focusing more of its efforts these days on capturing larger enterprise accounts. It already, in partnership with Google, undercut its own pricing with a low-end package that has elements of ad-supported funding. So I think Salesforce.com pre-empted that move.
The other consideration is Microsoft’s partner strategy. Its 10% cut for partners is derisory, and out of kilter with what partners look for in the SaaS marketplace (NetSuite for example offers a generous 30% lifetime margin to its partners). It’s also a far cry from the margins partners are used to on Microsoft’s licensed products. This is hardly likely to engender loyalty among Microsoft’s partner base and indicates how much more Microsoft still has to learn about how to be successful in the SaaS marketplace.
