For information technology pros who are shocked (shocked!) That Salesforce is offering major discounts to customers in return for bigger buying commitments, here’s a news flash: This is nothing new.
Microsoft (MSFT) and Oracle (ORCL) have used volume discount schemes for years, said Robert DeSisto, vice president and distinguished analyst for research firm Gartner (IT). The only difference is that these discounts are now being deployed by a newer (but not super new) generation of cloud-focused providers that sell software on a subscription basis, rather than as an all-in-one upfront software package that runs on customer servers.
Now, as before, discounts get bigger when the buyer a) purchases more software modules b) adds more employees to a contract or c) all of the above.
But, having said that, there is a new wrinkle in the Salesforce saga (CRM) since the company is much bigger now than it was just a few years ago. That’s because it’s spent billions of dollars on acquisitions—Buddy Media, Radian6, ExactTarget, RelateIQ and a half dozen other software companies in the past few years—so it has more stuff to sell.
And Salesforce (like Oracle and other competitors) dearly wants to expand its footprint in existing accounts by selling its marketing and other software services to companies already running its customer relationship management (CRM) software.
Salesforce has also brought on “a new crop of heavy-hitter sales leaders—largely from Oracle which has made sales tactics more aggressive,” said Forrester Research (FORR) vice president and principal analyst Liz Herbert. Two years ago, Salesforce brought on Keith Block, formerly Oracle’s (ORCL) top sales executive, as president and vice chairman.
Due to those factors, the size of Salesforce’s deals “have grown astronomically versus early days,” noted Herbert. “Top clients now spend millions each year, and they sign multi-year contracts.” A Salesforce spokesperson declined comment, citing the need for confidentiality in customer matters.
But here’s a key point for buyers, if you have a volume contract and want to change things up for the next term all bets are off. “If your current contract is for 1,000 users and you want to reduce that to 750 users, the discount terms will change and you will end up paying the same or more than before,” DeSisto said.
Not a bad deal if you’re the seller.
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