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Grain of Salt

SuperSean 28th Aug 2008

The key points in Debes comments are:

- Lawson like to lock their customers in; and,
- they can't make the business model of SaaS work their KPIs.

Salesforce.com doesn't lock its customers in, you can go and get it all back by CSV and put it in another system very quickly.

Debes is right about Salesforce.com's profit margins, they are pretty poor - their FY09 guidance is for $36m in profit on slightly over $1b in revenue. However, I think the thing that Debes is "intentionally" leaving out is that Salesforce.com spun off $53m in cash on $263m in revenue. So they suffering depreciation and the expenses of stock based remuneration, but those are sunk costs. The market values Salesforce.com because unlike previous incarnations of "bureaus" and "ASPs", Salesforce.com is profitable and cash flow positive. It is also an attractive asset to buy, one bad quarter or a missed growth number doesn't erode the value of their customer base.

I think what you'll see is that Salesforce.com has turned the corner on the "return dilemma" that Debes was talking about. He couldn't tie up that much capital and resource trying to build a new business model that cannibalises his existing business. Salesforce.com and other SaaS players that are profitable around the world (not all SaaS companies are on the Nasdaq) are also realising that the investment curve is diminishing as a percentage of revenue and therefore, profitability is becoming easier.

The last thing I'd say is, a good idea doesn't become a bad idea because it was poorly executed. As a customer of both, Siebel and Salesforce.com over the years, let me say that Salesforce.com is TEN TIMES better than Siebel. In fact, there isn't a CRM product on the market as pleasant to use as Salesforce.