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CRM titan Salesforce is squeezed in a competitive market

CRM and CX giant Salesforce is plagued by an activist investor, slower business growth and pressure to increase profit margins with layoffs as the CRM market gets more competitive.

Salesforce has fallen on hard times recently.

As activist investor Elliott Management takes a multibillion-dollar stake in the CRM and CX giant and a slowdown in business spurred layoffs of thousands earlier this year, its future seems less certain.

But demand for CRM tools continues to grow. According to Gartner, the CRM software market is projected to show strong growth through 2025. With crowding in the market, CRM tools are becoming commodified. More and more hyperscale cloud companies offer their own CRM products, and smaller niche businesses provide CRM along with productivity tools and database offerings.

Opus Research lead analyst Dan Miller refers to this dichotomy as a "suite of services" as offered by some Salesforce competitors, including the tech giants, versus "best of breed" as typified by Salesforce, which originally helped create the CRM market and has refined its platform over decades.

In this Q&A, Miller discusses Salesforce's problems and the growing consolidation in the CRM market.

How has Salesforce changed over the years?

Dan Miller, lead analyst, Opus ResearchDan Miller

Dan Miller: Salesforce is a cloud-based service provider that calls itself CRM. At its inception, it was a very popular source of automation software for list building and calendar building for the sales force. It helped invent customer relationship management because it kept adding features and functions that were less about contact management, and more about building information and data around these accounts.

Salesforce realized that if you take a no-software approach and let users consume computer power on a contract, customers could use what they want and Salesforce could add functions as needed. They built a winning business model that defined both software as a service and other customer-facing tools.

How has the CRM market changed?

Miller: Before, the head of sales or chief revenue officer was responsible for buying cloud-based customer care. But now, it's the customer experience person. Now, there's a CXO [chief experience officer] and everything must be siloed. Within CX, there is a better sense of who customers are and how best to serve them. So, it's end to end.

Also, the space has changed to encompass more features and functions. At Opus, we coined a term -- conversational cloud -- to capture the idea that customer relations is this asynchronous conversation that's taking place, and it could involve a search engine, calling an agent or visiting a website.

Salesforce was early to recognize that and provide a stronger relationship using resources in the cloud to track customer history and find products. Salesforce has their AI resource, Einstein, to bring natural language understanding and quicker intent recognition of each customer so you can accelerate them on their way, and it feels like they're getting better service.

Why has the CRM market become so competitive?

Miller: It's such a large pie, and there's so many aspects to it. The hyperscale cloud companies have a ready-made package. AWS sells raw cloud capability, but also Amazon Connect, which is its own contact center. Salesforce is a large competitor in CRM with AI capabilities, and it can bring in a contact center solution. But now there are more competitors with different niche offerings.

Each company wants a bigger share of wallet, and so they're trying to bring in more functions, Salesforce included. Salesforce has received criticism for not assimilating acquisitions smoothly enough. Slack, for example. Perhaps it can hide this shortcoming because of its dominance with its core CRM business and successful past acquisitions.

What role has the tightening of the market played in Salesforce's recent financial troubles?

Miller: There are some macro issues that are happening in the financial world. Zero interest rates are gone. Just two years ago, there were rewards for fast growth over profitability. There were rewards to large market share over generating cash. Now, there's more pressure for financial performance.

Salesforce's recent challenges stem from a hostile investor that has different ideas about staffing numbers and core business direction. With recent mass layoffs in tech, there was pressure to lower head count to increase margins. When that kind of pressure happens, everybody's a critic.

What kind of opportunity does this present for Salesforce's biggest competitors?

Miller: Salesforce used to think that their competition was Oracle, Microsoft Dynamics and SAP. Now, they're going up against not just Dynamics, but Microsoft's other offerings, as well as Google and Adobe, which offers marketing services and targeted ads.

The tentacles of cloud-based customer care are almost everywhere.

The competitors are going to differentiate themselves by their strengths, which normally come out of other areas. People aren't really buying CRM so much, but instead, tools in the conversational cloud. They're buying CRM contact center, ERP and IT service management, which ServiceNow offers. There's smaller companies like Zoho, which has a CRM offering as well as productivity tools and database offerings.

There's this constant tug of war in this battle for wallet, about whether enterprises are buying a suite of services from a single source, be it AWS or Salesforce or Microsoft, or whether they want to buy the best of breed to have a competitive edge.
Dan MillerLead analyst, Opus Research

Salesforce is still the envy of all the competitors. They're the leaders in market share. The battle is to not get involved in a race to the bottom, to become the cheapest provider.

What does Salesforce's future look like?

Miller: Their future won't be that different from their past. They have a very loyal following and installed base, and they've done some really creative base work to bring conversational AI into the path between customers and companies.

What does the future of CRM look like?

Miller: There's this constant tug of war in this battle for wallet, about whether enterprises are buying a suite of services from a single source, be it AWS or Salesforce or Microsoft, or whether they want to buy the best of breed to have a competitive edge.

Salesforce is trying to do the best of all as a single-source provider, at least when it comes to CX- and CRM-oriented stuff. They will have it either under their own brand or in their service cloud, and the customer can pick and choose from the companies it works with.

CRM was never a very well-defined set of capabilities. And that's becoming fuzzier. Leading companies add features, functions and services to their core offerings. The future holds a broader suite of services for the customer experience. There will be more attention toward the AI-supported offerings as well.

Editor's note: This interview has been edited for clarity and conciseness.

Mary Reines joined TechTarget Editorial in October 2022. She is a news writer covering customer experience and unified communications. Before TechTarget, Reines worked for five years as arts editor at the Marblehead Reporter.

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