As Salesforce.com grows, analysts probe ROI

Salesforce.com Inc. recently reported first-quarter results showing growth of more than 80 percent in its paid-subscribers count and revenue from the year-ago period, then followed that news by announcing two high-profile endorsements this week: a partnership with Accenture Ltd. and a 5,000-seat licensing deal at Merrill Lynch & Co. Inc. But as Salesforce.com's star continues to rise, analysts are stepping up their warnings to customers that hosted applications can carry steep costs over the long run, especially for larger organizations.

Research firm Gartner Inc. estimates that after three years, the cost for complex organizations of running Salesforce.com will surpass that of traditional, packaged CRM (customer relationship management) software. Salesforce.com's strength is SFA (salesforce automation) functionality; while it offers tools for customization and adding additional applications to its platform, building out those features requires a customer to invest the resources themselves or work with a third-party ISV (independent software vendor).

Gartner cites integration of production planning and scheduling information from logistics systems, complicated pricing contracts, detailed quotation information and access to customer financial data from accounting systems as areas where Salesforce.com may not be robust enough to support complex customers' needs without additional, potentially pricey, customization.

In a report issued this week probing the ROI (return on investment) Salesforce.com delivers to customers, Nucleus Research Inc. found most customers reported positive returns, with the scale of those returns depending primarily on how rudimentary the customers' previous CRM efforts were. More than 70 percent of the 29 Salesforce.com customers Nucleus polled were replacing a basic or paper-based contact management system; for these users, the ability to access information in one unified database delivered immediate time savings and better sales visibility.

Nucleus also found that while Salesforce.com touts marquee customers like Merrill Lynch, big enterprise deals remain rare exceptions for the company. Salesforce.com's average deal size is for 17 users, and in Nucleus's survey, 45 percent of respondents were running Salesforce.com for fewer than 100 users. More than 90 percent of those polled had fewer than 500 users. The danger for Salesforce.com is that smaller customers are the ones most likely to jump ship: More than a third of Nucleus's respondents said they would consider changing CRM vendors or were in the process of doing so.

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