Service Cloud Looms Over Call Center Software

Gaul may have been divided into three parts, but Salesforce.com sees the call center market as divided in two. However, it may not have territory to itself for long.

Alex Dayon, senior vice president of the service & support business at Salesforce.com, told me the company sees the same dearth of applications for the low end of the call center market (defined as 200 seats or less) as it did in the customer relationship management (CRM) space.

We met during a lunch break at the company's customer and analyst day meeting in New York today.

"The low end of the market is green field today. There are few packaged applications for call centers with under 200 seats. We have the same opportunity as with SFA," the company's flagship on-demand CRM application.

For the time being, Salesforce.com has this market to itself, and gained 56% market share in the call center application market in 2008.

China Martens, an analyst with the451Group, noted that customer communication software vendors Kana, which has a strategic relationship with IBM, and eGain, which is close to Cisco, could also enter the market.

Both are public companies with very low market valuations (Kana closed at $0.62 today and eGain at $0.48), and Martens told me it was conceivable that IBM or Cisco could acquire them on the cheap and begin competing in this space themselves. That prospect should be keeping Salesforce.com executives up at night.

She also cautioned that Salesforce.com has to guard against the perception that the Service Cloud is "just a nice to have."

As for the other segment of the market, Dayon told me, "the high end is radically different."

Eighty percent of that part of that segment is served by packaged applications from among the group of Amdocs, Remedy, PeopleSoft and Seibel (both owned by Oracle); Salesforce sees an opportunity to swoop in when customers need to upgrade or replace their software.

"The compelling reason to act is a merger," noted Dayon, because newly-merged companies tend to want to consolidate on a single platform, and they often use the opportunity to review their options.

Moreover, because Oracle is phasing out PeopleSoft, those customers "have no choice."

Martens noted that Salesforce.com, like SAP and Oracle, is also busy tapping its installed base with up-sells. "It's all about sticky, sticky, sticky--at all levels," she said.

Later in the day, chief financial officer Graham Smith described the company's growth strategy as "seed to grow to ELA," which in everyday English simply means starting small, then increasing the number of Salesforce.com applications a customer runs, and finally selling them an enterprise license agreement.

He noted that 50% of the company's revenue growth comes from existing customers.