1. Florida Gulf Coast University
Individual Case Analysis
GEB 6895
Sophie MICHELOT
11/21/2013

2. INDUSTRY VALUATION
Salesforce.com primarily operates in the cloud CRM industry, thus, we will focus our
analysis on this specific industry. Here, the valuation can be increased through:
Revenue growth: investors will value a company which is able to grow and expand
its revenues over the years. It translates the efficiency of a business model in an
immaterial industry.
Frequency of new product launches: the ability of the actors in this industry to
innovate is highly important as it shows the dynamism of a firm.
Brand image: the plethora of competitors in the industry can lead potential
customers to less rational and more emotional choice for a cloud CRM provider.
Here, the impact of the brand image can be decisive.
Customers portfolio: investors will tend to value firms with highly diversified
customers portfolios, which translates multiple sources of revenue for a firm and
less dependency toward a few large customers.
COMPANY’S GOALS
Salesforce.com does not clearly state its goals for the coming periods. Nonetheless, it has
published the following estimations:
2014: revenue should amount $4.055 billion; corresponding to a growth of 33% in
comparison with previous year; and an EPS of $0.34.
2015: revenue should amount $5.2 billion.
Growth is critical for Salesforce.com, which operates in a highly competitive industry with
fast technological changes and fact introduction of new products and services. Regarding
the valuation leverages in this industry, we can establish that the following elements are
critical for Salesforce.com:
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3. Maintaining high revenues and a dynamic growth through the conquest of market
shares,
Explicitly and loudly communicating on new products and innovation,
Building strong and recognized brand,
Developing a balanced and stable customers’ portfolio.
CORE PROBLEMS
The major challenge of Salesforce.com is to find promising market segments and business
tactics to generate more revenues and develop a sustainable growth. Following are the key
issues faced by Salesforce.com to fulfill its objectives:
Reaching new customers: Salesforce.com focuses its efforts on direct sales forces
and indirect sales (through partners referrals). It needs to diversify its sales channel
to convince new customers.
Generating more revenues from current customers: it is critical for Salesforce.com
to get its current customers renewing their subscription, and eventually adopting
premier service and higher-priced products.
Diversifying its offering to other business sectors: Salesforce.com is trying to adapt
its products, originally designed for sales departments, to other business units such
as marketing and human resources. This implies accurately identifying the needs of
customers for these specific activities.
Expanding operations abroad: most of Salesforce.com’s customers operate abroad
and thus need support service for their foreign subsidiaries. Salesforce.com is
physically present only in 15 countries and fails to provide a high quality support
service to its most internationalized customers.
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4. Eliminating competition: there is a plethora of independent and unpredictable startups in this industry, often proposing free products and services. Salesforce.com can
suffer from this competition without a dynamic innovation strategy.
Fighting skepticism toward the cloud: cloud services raise several concerns, mostly
in terms of security and storage of data. To attract new customers, Salesforce.com
needs to acquire a certain legitimacy in data security.
TOOLS CHOSEN
We will base our analysis on the following strategic tools:
Industry life cycle: we need to identify in which stage the industry currently stands
in order to see what is next for Salesforce.com,
VIRS analysis: we need to identify Salesforce.com’s competitive advantages in order
to determine where the company has to increase its efforts,
Business model and generic strategy: we need to clearly understand how
Salesforce.com makes business and how it responds to market trends,
Strategic group mapping: we need to understand the position of competitors to
evaluate the coherence and the potential of Salesforce.com’s strategy.
See Exhibit 1
efforts on the cloud CRM market to gain market shares and to try to achieve a global
recognition. Revenues and profits can be expected but are highly jeopardized by a fierce
competition. The use of marketing tools and strategy to attract even more customers and
retain them is still critical at this point for Salesforce.com.
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ANALYSIS & ALTERNATIVES
beginning of this growth. This situation suggests that Salesforce.com has to increase its
INDUSTRY LIFE CYCLE
We established that the CRM industry stands in the growth stage, more specifically at the

5. The VIRS analysis reveals that Salesforce.com enjoys competitive parity with most of its
resources and capabilities. The only sustainable competitive advantage identified is the
brand image. It seems critical for the company to make its temporary competitive
advantages sustainable. This implies focusing efforts on customer relationships and on the
VIRS ANALYSIS
See Exhibit 2
role of master of virtual business networks.
The differentiation strategy followed by Salesforce.com is possible through its business
model based on subscription fees, direct sales, and the advantages of cloud technology.
With this strategy, Salesforce.com seems to surpass the competition from CRM software
publishers, but is still threatened by its direct competitors using cloud technology.
The mapping of competitors confirms the strategy adopted by Salesforce.com. It also
indicates a strong trend: the entry of CRM software publishers in the cloud CRM market.
These actors tend to choose a cost-leadership strategy directly targeting Salesforce.com.
Intensifying the differentiation strategy: this will mean to develop innovation
internally, to diversify the product offering (cloud CRM for design, finance,…), to
develop exclusive sales channels, and to implement a strategic internal expansion
through subsidiaries;
Turning to the cost-leadership strategy: this will mean to acquire external
capabilities from existing companies, to develop new sales channels, to reduce cost
by maximizing economies of scale, and to expand the activities abroad through
ALTERNATIVES SUMMARY
Based on the results provided by the strategic tools, we can draw three alternatives:
STRATEGIC GROUP
MAPPING
See Exhibit 5
BUSINESS MODEL &
GENERIC STRATEGY
See Exhibits
3&4
partnerships;
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6. Diversifying activities: this will mean to use the advantages of Salesforce.com’s
business model and the cloud technology to enter new markets such as social
networks, and web advertising.
RECOMMENDATIONS
See Exhibit 6
We base our recommendations on the comparison of the different alternatives formulated
above. Regarding the stage of the cloud CRM industry, we think that Salesforce.com can still
generate significant revenues from this market. Thus, we recommend the intensification of
the differentiation strategy, relying on:
The creation of cloud CRM applications for every department of the firm,
The constitution of powerful autonomous foreign subsidiaries,
The enhancement of the referrals partnerships as the primary sales tool,
The improvement of the customer support service,
The enhancement of collaborative strategies (more interaction with customers in
products and services design).
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7. APPENDIX
Exhibit 1: Industry Life Cycle
Cloud CRM industry’s
current stage
Industry revenue (2012)
$18 billion
Industry growth (2011-2012)
+12%
Sales repartition
80% from North America and Western Europe
Expenditures of cloud CRM providers
26% dedicated to sales, 20% to marketing
Exhibit 2: VIRS Analysis
Resource/
Capability
Valuable?
Rare?
Difficult to
imitate?
Without
substitutes?
Implications for
competitivenes
s?
1. Ventures
acquisitions
YES
NO
NO
NO
Competitive
parity
2.
Headquarters
in San
Francisco
YES
NO
NO
NO
Competitive
parity
3. Referrals
partnerships
YES
YES
NO
NO
Temporary
competitive
advantage
4. Customer
portfolio
YES
YES
NO
NO
Temporary
competitive
advantage
5. Brand image
YES
YES
YES
YES
Sustainable
competitive
advantage
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8. Resource/
Capability
Valuable?
Rare?
Difficult to
imitate?
Without
substitutes?
Implications for
competitivenes
s?
6. Direct sales
force
YES
NO
NO
NO
Competitive
parity
7. Cloud
technology
YES
NO
NO
NO
Competitive
parity
8. Social
networks
technology
mastering
YES
YES
NO
NO
Temporary
competitive
advantage
9. Developers’
network
YES
YES
NO
NO
Temporary
competitive
advantage
1. Salesforce.com has entered in a wave of acquisitions over the past years. The strategy followed is to acquire leader start-ups
on very specific activities and competencies developed. It allows Salesforce.com to introduce new products faster than by
internal development. But considering the plethora of promising start-ups in the cloud applications market, such a resource is
neither rare nor difficult to imitate, thus only granting a competitive parity to Salesforce.com.
2. Salesforce.com’s headquarters is located in San Francisco. Close to a cluster of IT firms, which can create some synergies with
other companies and talents. Nonetheless, every can pretend the access to such a cluster, so it only gives Salesforce.com a
competitive parity.
3. Salesforce.com has implemented an efficient referrals partnerships program to attract new customers. In this program,
partners are rewarded through fees. It is quite rare but can be imitated or substituted. Thus, we consider this resource as a
temporary competitive advantage.
4. Salesforce.com manages to have a diverse and balanced customers portfolio, which gives it a temporary competitive
advantage, as the competition is fierce and can damage this portfolio at any time.
5. Salesforce.com has become a successful brand in short time. The image is largely build on the charisma and personality of its
leader, Marc Benioff. We consider the brand image as a sustainable competitive advantage in the cloud CRM industry.
6. Salesforce.com puts many efforts on direct sales force to reach new customers. This capability can be easily acquired by
competition, only granting a competitive parity to Salesforce.com.
7. Salesforce.com masters the cloud technology and has smartly integrated it in its business model. The outstanding emergence
of the cloud technology makes us believe that such a capability only generate a competitive parity for Salesforce.com.
8. Salesforce.com combines CRM with social networks models and frameworks. The firm is highly active on social networks and
gives to its customers the possibility to interact on these same networks in a more efficient manner. The knowledge and
competencies of Salesforce.com in this specific area get it a temporary competitive advantage.
9. Salesforce.com has created a platform for developers of business apps. Thus, the firm shelters innovation from eternal sources
and can have primary knowledge of novelties and innovations. We consider this capability as rare but not difficult to imitate,
thus granting a temporary competitive advantage to Salesforce.com.
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9. Exhibit 3: Business Model
CUSTOMER VALUE PROPOSITION
Target customer: any business of any size with sales forces, in North America, Western
Europe, Japan, Australia, China, India, and Mexico.
Job to be done: to provide CRM applications through cloud technology.
Offering: five distinct offers, sold via direct sales forces (telephone and field sales reps),
and referrals partners:
“Sales cloud: allows to access accurate customer and prospect information, track
leads and progress, forecast opportunities and collaborate around closing a sale
on any device.
Service cloud: connect the customer service agents with customers across every
channel: phone, email, chat, self-service web portals, social networks and online
communities.
Marketing cloud: listen to conversations taking place on public social networks.
Salesforce platform: provides infrastructure and many of services that application
developers need to build and deliver business apps.
Professional services: training sessions for the use of products.”
PROFIT FORMULA
Revenue model: subscription format (no hardware, no software). Salesforce.com
charges fees for any additional services (customer support service, training). The firm
looks for new customers’ subscriptions and current customers renewals.
Cost structure: economies of scale realized through cloud computing, which allow the
commercialization of standardized services and products, that can be customized by
customers themselves. The major cost is selling and marketing expenses.
KEY RESOURCES
People: customer service and direct sales forces
Technology: internal developers and ventures acquisitions
Channels: referrals partners, international subsidiaries
Brand: strong PR strategy
Exhibit 4: Generic Strategy
Salesforce.com has a broad customer target and tends to offer standardized products, which will become customized
by customers themselves. Salesforce.com tends to offer higher prices than cloud CRM competitors, with an emphasis
on product differentiation through customization and additional services. Thus, the strategy followed is broad
differentiation.
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10. Exhibit 5: Strategic Group Mapping
Market share
High price
Oracle CRM on
demand
SAP 360
Salesforce.com
Microsoft
Dynamics
IBM
Adobe
SugarCRM
Low price
Cloud
Software
To acquire external
capabilities from existing
companies
4
3
To develop new sales
channels
To develop exclusive sales
channels
2
3
To implement a strategic internal
expansion through subsidiaries
4
2
To diversify the product offering
Risk
2
Diversifying
activities
Feasib
ility
4
To develop innovation internally
Risk
Risk
Turning to the costleadership strategy
Intensifying the differentiation
strategy
Feasib
ility
Feasib
ility
Exhibit 6: Alternatives Comparison
2
4
To enter the social
networks market
2
3
2
2
To enter the web
advertising market
2
4
To reduce cost by
maximizing economies of
scale
4
3
To expand the activities
abroad through
partnerships
3
4
We evaluate the relevance of the different alternatives through two criteria: feasibility and risk. The feasibility
criterion ranges from 1 to 5, with 1 meaning highly feasible and 5 hardly feasible. The risk criterion ranges from 1 to
5, with 1 meaning low risk and 5 high risk.
We consider that in the current state of resources and capabilities of Salesforce.com, the intensification of the
differentiation strategy is the most relevant.
SOURCES: salesforce.com (2013 Annual report), forbes.com, gale.com, reuters.com, eWeek.com
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