Techaisle Analyst Insights

Pilgrimage
Salesforce.com held its annual customer and partner pilgrimage last week called the Dreamforce 2011. This mega event had a whopping 45,000 registered attendees and at least 15,000 were present for the opening keynote by Marc Benioff. The much anticipated keynote was given by Marc Benioff who no doubt he is a master marketer.  He
successfully drilled home the message of Social Enterprise and how Chatter fits
neatly into the vision of new type of collaboration, interaction and customer
acquisition.

In fact not only the keynote but the entire event had widespread case studies from large enterprises that were using Chatter as their hub for all internal conversation. Heavyweights from Coca Cola, Burberry, NBC Universal, Verizon and others were there to lend support and show how Salesforce.com was helping them transform their sales organizations. Even the billboard cut outs had quotes from CEOs of prominent enterprises touting the benefitsof Chatter  on multiple devices such as iPads, Tablets and mobile phones.

Key Announcements
The event was very significant in more ways than one. On the one hand it had four key announcements while on the other it did not talk a lot about SMBs. But contrary to popular sentiments many of the announcements may actually be very relevant for SMBs.

Four Key Announcements were:

1. Chatter: ability to create and maintain a private social network for business and soon to be available (Chatter Now, Chatter Customer Groups, Chatter Connect, Chatter Inline Filters, Chatter Approvals)

1. Data.com: ability to create targeted lists from 30+ million business leads from Jigsaw as well as 200+ million in-depth company profiles from D&B and connect them into the CRM process

1. Database.com: a database for the business built and used in the cloud

1. Touch.salesforce.com: built in HTML5 with the capability of rendering any app built on Force.com platform to any mobile device without modification

SMB Suitability?
While all of the above technologies are great for Enterprises some are better suited for SMBs than others, especially for the less than 100 employees’ businesses. Last year Salesforce.com had revenues of $1.6 Billion with over 100,000 customers (Salesforce.com Annual Report). This suggests an average of $16,000 per customer and much fewer than 100 users per customer. And this leads us to believe that most of Salesforce.com’s customers are upper-mid-market businesses. The above announcements fall firmly within the realm and sweet spot of the 100-999 employee size businesses.

Chatter as an SMB Collaborative Platform
As per Techaisle’s continuous Global SMB research, a small business (1-99) has an average of 8 employees in the US and 20 percent, that is, 1.2 employees per small business are on the Cloud. With this low number of employees will Chatter be a viable option for small businesses? These small businesses are already overburdened and hamstrung with using Facebook, Twitter and other external facing social networking channels? The answer is yes with some modifications. Recent Techaisle study shows that 81 percent of SMBs are adopting mobility solutions, 66 percent of small business employees and 48 percent of mid-market employees either work from home or travel for work at least once a week. For these employees and business owners collaboration is a top of mind issue. To that extent Chatter is a great collaboration tool. Chatter makes the work from anywhere and anytime easier for SMBs. It makes it all the more important for mid-market businesses to adopt Chatter as they have an average of 125 employees per business and 30 percent of them are on cloud.

Database.com & Data.com
This is where the divergence begins. Are database.com and data.com relevant for SMBs? Yes, but the pricing and unpredictable monthly expenditure may limit SMBs’ use and deployment. Database.com is being offered free for up to 3 standard users, 3 admin users, 100,000 records and 50,000 transactions per month. Both a B2C SMB and B2B SMB will have more than 100,000 records but necessarily not 50,000 transactions. It also depends upon the size and vertical of the business. Therefore, it will take time for proper used cases to accumulate before SMBs and their channel partners can begin to recommend such a
solution.

Data.com is quite a powerful tool priced at $99 per user per month. This allows up to 300 records per month to be imported with additional records at $0.50 per record. This is quite an attractive pricing for SMBs.  However, it would be up to their channel partners to show them the value along with some price comparisons. Most SMBs may require more than 300 records per month while others may require less depending upon their coverage areas. More mid-market businesses would be able to use it rather than small businesses.

Jigsaw (genesis behind data.com) suffers from its crowd sourcing practice [in that it is populated by people in exchange of credits to see other people] - often data is not up to date and the proportion of businesses contacts tend to be of large enterprises, so not a lot for SMBs to get records and lists of neighborhood businesses, non-profits and other organizations. This may create a dilemma for an SMB paying customer if they cannot find relevant contacts.

Next Steps for Salesforce.com's SMB Strategy
As the adoption of salesforce.com continues within large enterprises it begins to look like ERP implementations of yesteryears. The cost to switch is tremendous. With a great messaging from Salesforce.com enterprises are willing and able to deepen their relationship with Salesforce.com.

Techaisle’s Cloud Computing research and market sizing shows that Cloud CRM spend by small businesses (1-99 employees) in the US alone is expected to be US$679 million in 2012. While Salesforce.com seems to have done well in the midmarket (100-999 employees) segment, 6 million small businesses (1-99 employees) in the US alone represent a huge opportunity.

Salesforce.com derives over two-thirds of its revenues from the US even though US accounts for just one-fourth of the world’s GDP and even other large tech companies derive a much greater share of their revenues from overseas than Salesforce.com. Techaisle's research shows a significant increase in awareness of and willingness to adopt SaaS solutions in several countries both among SMBs and Enterprises.  In fact only 35 percent of SMB Cloud CRM spends in 2012 is expected to come from the US.

Salesforce.com has yet to show its commitment and plan for a global SMB reach.

Salesfore.com has grown rapidly and the guidance for this year is also for continuation of that trend. However, the market conditions will begin to change with the the dramatic increase in awareness as well as potential supply of SaaS providers especially targeting the SMBs. Techaisle’s global research also finds that SMBs in selected markets also show a significant willingness to adopt various other SaaS solutions. Given the SMBs’ proclivity to purchase multiple solutions from a single provider, Salesforce.com should plan to broaden its offerings beyond CRM and also allow for easy and efficient integration with its
CRM offerings.

Salesforce.com has been a pioneer in the PaaS space with its Force.com offering. The platform is being used primarily by enterprises or channel partners (e.g. ISVs, VARs and systems integrators). To continue its reach within the SMB segments Salesforce.com has to develop a stronger channel ecosystem which could contribute to growth in its subscription base.

Anurag Agrawal
Techaisle

SAP has agreed to acquire cloud-based human capital management (HCM) offerings provider SuccessFactors for $3.4 billion. Under the acquisition, SuccessFactors' team and technology will be added to SAP's cloud assets and the combination of SAP and SuccessFactors will establish an advanced end-to-end offering of cloud and on-premise solutions for managing all relevant business processes.

Without a doubt SAP has made a good move and in the right direction. One may argue that paying 13 times the revenue for a loss making company with nearly 66% of revenue going towards SG&A does not make financial sense. However, if SAP can leverage SuccessFactors’ technology and talent to speed up its transition to the cloud, the price would be quite worth paying. In fact, by offering SuccessFactors’ technology to its current customers, SAP could help reduce the cost of new customer acquisition for SuccessFactors, which has been a major concern for many SaaS providers.

SAP has been trying to add subscription-based cloud solutions to its license and services offerings for a long time. A lot has been written about non-success of SAP’s Business ByDesign – a SaaS offering for large-scale business-management deployment focused on growing mid-market companies. SAP needed just the right acquisition to truly begin its journey into the cloud.

SuccessFactors will not only provide SAP with 3,500 customers, but also technology and above all talent. SAP’s task in the immediate future would be use the technology and talent to scale across businesses, in effect a larger customer base. This is something that Cisco does well and has repeatedly demonstrated its capabilities across numerous acquisitions.

While enterprise and mid-market businesses can be targeted through the acquisition, there is still no “S”, that is, small business, within the SAP portfolio. The small business cloud computing market is the most fragmented and among the fastest growing. SAP should continue to look for acquisitions in the area. Possibilities could be Concur, SugarCRM, Zoho and others.

Several companies are ahead of SAP in delivering SaaS to small businesses including Microsoft Dynamics, Salesforce.com and NetSuite. Microsoft also has one of the largest numbers of channel partners that are very conversant with Microsoft cloud solutions and Salesforce.com has its Force.com platform that enables channel partners to develop new solutions for their customers. SAP should also think about expanding its SMB-focused channel partner base and offering PaaS for those partners to develop new solutions for
SMBs.

Anurag Agrawal
Techaisle

Intuit today announced it has entered into a definitive agreement to purchase Demandforce for approximately US$423 million. Demandforce has been primarily focused on SMB segment offering products and services to help SMBs navigate and thrive in connected economy by automating their marketing and customer communications, building and maintaining a strong online reputation and raising their profile with their local consumers.

Speaking on the acquisition, Kiran Patel, EVP and General Manager, Intuit Small Business Group said, “Demandforce sits at the sweet spot of Intuit’s SMB customer base and is consistent with our goal to help our customers save time and make money.  With a compelling customer value proposition, SaaS model and high growth profile, Demandforce will provide opportunities to grow Intuit’s customer base and revenue per customer over time.”

Analyst Speak

Intuit is continuing to build its capabilities in cloud application areas focused on alleviating the pain points of small businesses. Based on surveys conducted by Techaisle over the last 3 years, improving sales and marketing has shown up consistently as the top business pain point of small businesses. Moreover small businesses are increasingly struggling to grow their revenues, retaining and positively connecting with their customers in a virtual world. Techaisle survey data shows that nearly 45 percent of small businesses are not sure how social networking tools can help promote their business. 68 percent of small businesses mention that “their business success depends upon a strong relationship with the customer, providing goods and services highly customized to their needs and being responsive to their demands”. These same small businesses are gravitating towards social media campaigns (48 percent), email marketing initiatives (68 percent) to generate new customer leads and maintain existing ones.

Demandforce acquisition certainly helps Intuit in extending its existing offering of website services. It rounds off the full suite from “get found” to “increase exposure” to “extend communications” to “consolidate presence”.

Beyond the capabilities of Demandforce, the acquisition brings into Intuit’s fold many different small business vertical industry solutions. These verticals are typically ignored or only addressed by web-hosting providers. They constitute a very large part of the SMB universe but with a dichotomous adoption of technology. For example, salons and spas use very limited technology but still want to increase their customer base beyond the usual “word-of-mouth”. On the other hand wealth management businesses use advanced and emerging technologies but strongly desire customer expansion, communication nurturing, feedback mechanism and certified reviews to positively impact their business.

Success of the acquisition will be dependent upon Intuit’s ability to integrate Demandforce with its web services, back-end systems such as Quickbooks and cross-sell across both Demandforce and Intuit customers.

It is a move in the right direction.

Anurag Agrawal
Techaisle

Small and Medium Businesses (SMBs) and their channel partners are benefiting from adoption of Marketing Automation tools and applications, according to one of our recent surveys. SMBs have embraced Cloud-based Services, including Marketing Automation, in large numbers to control costs and stay competitive. The ability to leverage robust offsite infrastructure, systems software, applications software licenses, upgrades and maintenance services as a monthly subscription bundle allows companies, and especially SMBs, to tackle much more complex competitive challenges than in the past.

What are SMBs doing with Marketing Automation?

With Marketing Automation point solutions and add-on modules, SMBs are able to add very powerful communications, filtering, data management and workflow components to the base CRM system; enabling more efficient sales process management. For many SMBs, especially at the lower end of the spectrum, sales lead management is done on spreadsheets with a move to a CRM system when the firm gets to the point where there are three or more staff working sales and marketing roles. Ultimately the core functions of lead generation, opportunity conversion and lifecycle customer relationship management remain at the center of marketing objectives and are the focus of automation. Substantial improvements of any of these areas can offer big dividends to companies in terms of ROMI.

Eighty Percent Satisfaction Level



Our survey revealed consistent praise from the ~80% of “satisfied and very satisfied” SMBs, who reported better demand generation, lead management, improved ROMI, better customer targeting and communication and several other benefits that help bring more structure and better capabilities to small organizations.

Benefits Differ by Company Size

As companies deployed Marketing Automation solutions, the benefits they realized were slightly different: all saw a broad variety of benefits but both small and medium businesses reported relatively more benefit in specific areas. For example, as seen in the chart below that Small Business reported “More Leads” by 18%, and “Shorter Sales Cycles” 12% respectively, compared to what medium companies stated. Small companies also reported relatively “Better Lead Quality”, “Lower Sales Costs”, and “Improved Personalization and Targeted Messaging”. Medium Businesses said they saw better productivity through identification of “Sales-Ready Leads”, “better understanding of prospect behavior”, “Better Campaign Reporting”, etc.



Generally it appears the results reported by the Small Business are more likely to cover basic issues involved in getting a sales process up and running, while the Medium Business results seem to revolve around improving an existing process, improving collaboration and process integration.

The important takeaways here are that 1) there is an increasingly high level of adoption of Cloud Services by SMBs, 2) the Cloud model is working for them, and 3) the benefits are tangible and supported by an ~80% level of satisfaction.

We will continue to share results from recent surveys covering several important topics for SMBs and Channel partners.

Davis Blair
Techaisle