Will Software as a Service or Cloud Computing erode prices in business application markets? If sales force automation is an indicator the answer is yes. Just this week Microsoft announced both a price cut and special promotion for its Microsoft CRM Dynamics Online offering. (see Gartner Research Note – Microsoft Reduces Prices to Win CRM SaaS Business published today) I also have routinely have seen discounts in the 40 – 60% range on customer SaaS Sales Force Automation deals this year for all providers.
The main issue is core sales force automation is commodity. Automating the management of opportunities, contacts, and activities has been around for over 20 years. Once functionality hits a level of commodity status, price becomes a key factor. This market dynamic will place heavy emphasis on a SaaS vendor’s ability to scale its operations and lower its per user cost to serve metrics to maintain margin targets. Those providers who have underinvested in operations will not be in position to be competitive in what will continue to be a very price sensitive market.