Salesforce’s decision to raise the prices of its software products from August was driven by a combination of factors, including inflation and pressure on earnings growth after a pause in price increases during the pandemic. It is believed that there is, but analysts believe the problem is also affecting other large technology suppliers. Said.
“While the pandemic has pushed up software prices across the board as inflation has squeezed operating costs for technology vendors, those costs have remained high,” said Liz Herbert, principal analyst at Forrester. there is,” he said.
Herbert said software vendors typically stopped raising prices during the COVID-19 outbreak, but started raising them when the pandemic subsided.
For example, Microsoft has announced that it will increase the price of the 365 Suite in the second half of 2021, ranging from 8% to 20% depending on the edition. SAP has raised its maintenance price by up to 3.3% in the second half of 2022. And Slack increased its prices by 8% to 9% over the same period. Other vendors, meanwhile, have raised prices without making announcements. For example, Oracle raised its maintenance price by 8%, but did not disclose the price increase, Herbert noted.
“Anecdotally, we have also seen some price changes. We have raised prices by about 10% in our contract with Adobe in relation to the Consumer Price Index (CPI) clause,” Herbert said.
After seven years of no price increases, Salesforce announced an average 9% price increase starting in August for Sales Cloud, Service Cloud, Marketing Cloud, Industry and Tableau, according to the company’s blog post published on Tuesday.
“The new list prices are $80 for the Professional Edition (up $5), $165 for the Enterprise Edition (up $15), and $330 for the Unlimited Edition (up $30). These editions will have comparable prices in other currencies. pricing,” the company wrote in the post, adding that similar price increases will also apply to Tableau, CRM Analytics, Marketing Cloud Engagement, and Account Engagement products.
Earnings Pressure Causes Price Rise
Investor pressure to make more money from the product is the main reason for the price increase, Herbert said.
“Given general market conditions and the particular profit pressure Salesforce is under, this price increase is not all that surprising,” said Herbert.
Strong support from users of Tableau business intelligence and data automation and integration software MuleSoft drove Salesforce’s fourth-quarter revenue growth to a staggering 14% year-over-year, but the company experienced a tumultuous few months at the end of last year. Days went by and the company cut about 10 people. A percent of employees have closed numerous offices, and co-CEO Brett Taylor and his Slack CEO Stuart Butterfield have left the company.
On the company’s recent quarterly earnings call, CEO Marc Benioff said that as Salesforce entered its fourth quarter, it needed to “significantly accelerate the timeline of its transformation plans.”
According to Seeking Alpha records, Benioff said during the call, “I had to press the hyperspace button to quickly advance my two-year goal and exceed it.” Benioff added that the company has a mechanism in place to talk to investors and listen to their concerns before changing its go-to-market strategy.
According to Omdia chief analyst Bradley Simin, the move to raise prices will help the company maintain profit levels in a mature market where most companies are already moving to the cloud. Deaf.
But for now, cloud revenues for most cloud service providers, including Salesforce, continue to grow at a compound annual growth rate (CAGR) of 17%, said Alan Webber, IDC research vice president.
On the other hand, new generative AI features such as Einstein GPT likely played a very small or negligible role in determining price changes, multiple experts agreed.
Forrester’s Herbert noted that Salesforce said at its latest AI Day event that pricing for generative AI services is still under consideration.
“GenAI pricing is likely to evolve over time as there are still many unknowns around cost, usage and price competitive pressures,” Herbert added.
How will customers deal with Salesforce price hikes?
According to Shimmin, the change in pricing strategy will affect many of Salesforce’s enterprise customers almost immediately, and could force smaller businesses to look at other options such as Zoho and Oracle. It says.
The price increase comes at a time when companies are trying to control costs in an uncertain macroeconomic environment.
“As a result, customers will continue to be able to evaluate the number of licenses they have for the Salesforce application and ensure they are getting the best value from the number of licenses they have,” said Webber.
Price increases may not affect large customers much. Keith Kirkpatrick, research director at Futurum Group, said customers were “not blinking” at price increases because “big customers are unlikely to actually see a 9% increase in net price given their size.” No,’ he said.
Additionally, the price change will not affect enterprise customers who have a 3-5 year contract with Salesforce.
“The actual price change for these companies won’t be impacted until it’s time to renew or add a new cloud,” Herbert said, because Salesforce’s discounts have fluctuated so wildly in the past. , added that it is difficult to estimate the ultimate impact of price changes. .
