Is Salesforce’s Analytics Cloud Really Making Waves?

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Salesforce.com (NYSE:CRM) appears to be fighting an uphill battle in getting customers to buy its Wave Analytics Cloud. According to the ‘State of Salesforce’ report by Bluewolf, 68% of Salesforce’s 1500 customers who were surveyed are planning to increase their investment in analytics. However, just 14% of the customers stated that they’re planning to implement Salesforce’s Analytics Cloud. [1] This suggests that the remaining 54% customers who are planning to increase their analytics investment may opt for Salesforce’s competitors. This in turn raises questions about Salesforce’s claims of achieving rapid traction for its Analytics Cloud.

Our price estimate for Salesforce.com is about 15% lower than its current market price.

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Is Wave Held Back by High Pricing?

The reasons behind the apparent reluctance of Salesforce’s customers to implement its Analytics Cloud are unclear. It is possible that the Wave Analytics Cloud may be priced prohibitively high. A Wave license costs $125 to $250 per user per month, in addition to a $40,000 monthly basic license fee. [2] This puts the Wave Analytics Cloud out of reach of most small businesses. The company has since changed pricing, confirming this view.  Wave apps are available for $75 per user per month.  And the Wave Analytics Platform, which includes Sales and Service Wave Apps and ancillary data and services, is $150 per user per month.

It should be noted that Bluewolf’s data in this regard may have been skewed due to the survey demographics. Only 32% of the 1,500 Salesforce customers surveyed had more than 3,000 employees, which could arguably be considered as large customers capable of affording Wave. Comparing the 14% adoption rate mentioned earlier with the 32% large customers implies an adoption rate of over 40%, which is certainly nothing to scoff at. However, 480 customers (32% of 1,500) is too small a sample size to derive meaningful conclusions, so the actual popularity of the Wave Analytics Cloud remains uncertain.

Better Integration at Lower Cost May Be on the Radar

Meanwhile, Salesforce has released an update to the Wave Analytics Cloud in the ongoing Dreamforce 2015 event. [3] The updated release promises better integration with Salesforce’s Sales and Marketing apps. Now, customers will be able to obtain analytics across Salesforce’s entire platform. Users of Salesforce’s Sales Cloud will also get a glimpse of Wave’s capabilities through improved reports and dashboards based on Wave’s visualization, that will be available in-app. This feature is likely to get existing Sales Cloud customers to entertain the possibility of adding the full capabilities of the Wave Analytics Cloud to their arsenal.

Further, Salesforce seems to have taken note of the prohibitive pricing originally set for Wave. According to unconfirmed reports, Salesforce was considering experimenting with pricing plans for its Analytics Cloud. It may opt for pricing discounts, or may remove the upfront license fees entirely in order to boost adoption rates. The company has not released pricing details for the updated Wave, but it may bring the price down to $85 per user per month according to some reports.

Either way, Salesforce will need to find a balance between increasing adoption rates and protecting its declining gross margin. Doing so is all the more crucial since Salesforce considers the cloud analytics market as its next growth frontier. CEO Marc Benioff has gone as far as to state that Salesforce may be “crossing over from the CRM industry into the analytics industry with this product”. [4] Considering the importance of this product for Salesforce’s future growth, it is vital that the company strikes a balance between pricing, strong customer adoption and margin accretion. Whether Salesforce does achieve a balance or decides to focus on customer adoption alone remains to be seen.

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Notes:
  1. The State of Salesforce, Bluewolf []
  2. The Salesforce Wave Rolls Past Its First 100 Days, CMS Wire, January 30, 2015 []
  3. Salesforce Press Release, September 14, 2015 []
  4. Salesforce Fiscal 2015 Fourth Quarter Earnings Call Transcript, Seeking Alpha, February 25, 2015 []