SaaS in Nappies

That's diapers for our US readers!

Think people, think...

Ben posted on cloudave.com about how both Salesboom and Netsuite are both aggressively targeting Salesforce.com’s customer base. This is bad strategy people, you need to think this through. Here’s why.

Firstly, think about who your competitor is? SaaS accounts for only 14% of the total CRM market. To me that clearly states that the SaaS competitors are the on-premise crowd. The ones with 86% of the market.... or the other $9bn dollars.

Secondly, think about what you are doing to the collective profit pool. Both propositions are cost based. So not only are you not growing the total SaaS profit pool by growing the market, you are cutting your own throats in a price war that doesn’t need to happen yet. There is enough growth potential left in SaaS CRM for you to happily maintain your margins! If you keep this up you are forever trashing the profit pool.

Thirdly, think about the global economic climate. Think about the recent announcements from SAP and how they are hurting, think about how the SaaS market could benefit from this perfect storm (I said it, Gigaom said it, Zoli said it). You have a fantastic opportunity to win SaaS Greenfield customers here, don’t pass it up.

Business strategy is a lot more than figuring out what your customers want, especially in a growth market. Looking at your peer (as opposed to competitor) organisation's pricing should be done, but not only with a view to competition. Also with a view to what signals are they sending here. If they put out a price that is seems high, it can mean they are saying we reckon there is a load of profit here, lets keep it that way.

To this end I am sometimes of the opinion that SaaS companies are in their infancy in terms of maturity of thinking, let alone market position. This just seems like a beginners error to me...

"There is enough growth potential left in SaaS CRM for you to happily maintain your margins! If you keep this up you are forever trashing the profit pool." I disagree with this logic. The applications have to be priced based on the value they bring to the customer, not relative to the competition. The focus for a CRM (or any) vendor should not be on 'maintaining profit margins', but on 'passing value to the customers'. Unfortunately this 'maintaining profit margins' attitude is what is keeping Microsoft from reducing the pricing of their office suite from $500, for example.

Raju, i'm sorry, but i don't get your point. Businesses aren't charities, they are created for one purpose only, to make profit. They do this by making products and services that their customers value enough to pay for. And with respect, any business should be 100% focused on what they need to do to make a profit. This includes giving the customer value, but it also includes getting the balance right between profits and delivering value (ie not rorting your customers) but you should be aiming to get the maximum amount for the value you offer. The price that a customer is willing to pay for that value is made up of many factors. How much the need the product or service, what the item does, how the item is valued relative to other similar items in the market, how much you use the item, brand etc etc. I would also respectfully suggest that Microsoft's current office pricing represents a great opportunity to the likes of Zoho. It means that they can either value base price (match or just be below ) microsoft, and make decent profits, or they can cost price for scale (meaning there is enough headroom in Microsoft price for Zoho to be a lot cheaper and gain market share). Profits are seen as evil, but they shouldn't be. That the money that allows business to run, grow, invest and employ more people, thus sharing the wealth..

Raju, I agree with you. Companies that is more worried about profit margins and less about adding value to the customers are bound to fail. Microsoft managed to survive because it got monopoly in the marketplace. It is not going to be the case with monopolyless marketplace. The companies that will succeed will have to put customer first. Days of planning for profit margins are over. Consumers are more educated and has less tolerance for companies that fail to add value to them. @the unreasonablemen, what made you think that adding value for customers is doing charity? In the current world, companies can make profit ONLY IF they add value to customers. If they don't, they will end up looking for charity. Welcome to Customer 2.0.

Krishnan, I didn't say that adding value is a charity. I said businesses were not charities. I also said that customers will pay for what they value, and that drives profits. Which I think you agree with in your statement.

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