Employees and investors aren't the only ones who stand to benefit from Salesforce.com's upcoming IPO. Several companies have negotiated significant discounts with the hosted CRM provider, according to new research.
Boston-based AMR Research spoke with six recent Salesforce.com customers. It found that the application service provider is inking larger deals and that those deals are resulting in customer discounts.
Half of the companies that AMR interviewed negotiated rates of $80 to $110 per user per month, well below the list price of roughly $125 for Salesforce.com's Enterprise Edition, according to the report.
"That's driven by the fact that Salesforce.com wants to go public and needs a steady revenue stream," said Laura Preslan, AMR research director. "Salesforce wants them to sign long-term agreements and gives them incentive to do that."
The other impetus for discounting is the emergence of Siebel Systems Inc.'s Siebel CRM OnDemand, the new hosted offering from the on-premise CRM software leader. The San Mateo, Calif., company is charging $70 per user per month and is promoting the new application by offering the first three months free. That means that Salesforce.com and Siebel are increasingly butting heads.
Because of the "quiet period" before a public offering, Salesforce.com declined comment on any IPO-related discounting. But Tien Tzuo, senior vice president of marketing, said that the company has not changed any of its business practices.
"I think what you are observing is a strong signal that we are entering an era of 'mega deals' for on-demand CRM," Tzuo said.
One Fortune 500 manufacturer that AMR interviewed is a heavy user of Siebel's in-house applications and has multiple business units where it chooses between Siebel and Salesforce.com applications. More divisions are choosing Salesforce.com because of ease of deployment, according to the AMR report. Additionally, the company doesn't plan to migrate those users to Siebel CRM OnDemand, citing the functionality gap between the two products, Preslan said.
Ease of use and high user-adoption rates continue to be the reasons companies choose Salesforce.com, Preslan said. While hosted software is far less expensive to get up and running, total cost of ownership over a three-year period is often higher than with in-house applications, Preslan noted. However, the companies AMR surveyed said that the adoption benefits outweigh the long-term costs, especially in the eyes of business executives.
"IT tends to look at the full cost and support," Preslan said. "Business leadership wants something now. They often have an immediate business pain that needs to be addressed."
A financial services firm with $40 million in annual revenue that was interviewed for the study gave an interesting reason for choosing Salesforce.com -- it didn't want to deal with a reseller. Salesforce.com sells directly to customers as well as through the channel. Typically, midmarket companies prefer to deal with resellers, Preslan said. In fact, one reason Microsoft has had success with its low-end CRM software is because of the software giant's strong partner community.
While Salesforce.com has made larger deals -- such as its recently announced agreement with SunTrust Banks Inc. -- it has also lost some customers who realized that long-term costs were higher than expected, Preslan said.
Once its IPO is over, discounting to add a steady revenue stream may end, but Preslan said that pressure from competitors like Siebel will continue to make hosted CRM prices flexible.