Can Microsoft Ever Catch Salesforce?

It struck me that much of the potential economic and social gains outlined in that report were taken from another IDC report about the GenAI Implementation Market Outlook in general. It is not unfair to take these general statistics and filter them to be specific for Salesforce, but they could also be filtered for any other Cloud CRM provider. I understand it is “marketing”.

Another thing that struck me is the eventual convergence of all GenAI efforts into extremely similar manifestations provided by all Cloud CRM providers. When you think about it, with only slight differences in appearance, all of these solutions from Salesforce, Microsoft, and other significant players do essentially the same thing and have for over a decade.

When one “discovers” a new need and launches a new feature, the others will follow suit quickly. This consistent copying from each other maintains the equilibrium and similarity in the products. GenAI will follow the same path, and quickly, all GenAI capabilities will more or less match across provider platforms. Having a lead in anything simply informs your competition, and it evaporates quickly.

So why is Salesforce the dominant market leader? Is their product better? I feel the product is basically the same as any other significant cloud CRM solution today. What is better, and has been since day one, is Salesforce’s Marketing and Sales of their platform. Microsoft, for example, is an Engineering organization led by… an engineer. Salesforce is a Sales organization led by… a master seller.

You have to give Marc Benioff credit. He “created” the Cloud CRM market back in 1999 with the launch of the cloud-only Salesforce.com. Four years later, in 2003, Microsoft launched Dynamics CRM, an on-premise product, clearly under the impression that this “cloud thing” was a fad. Salesforce devoured the market, and Microsoft did not concede that the cloud was real for CRM until 2008 when they launched Dynamics CRM Online. By then, Salesforce “owned” the market, generating $560M in 2008, and had all of the brand affinity due to a decade’s headstart in Cloud CRM. They still have a 24% market share in 2022, and I estimate they generate at least 6x the revenue of Dynamics non-ERP products.

Will Microsoft’s Dynamics Copilot strategy close the gap? I would say no. Salesforce has a similar strategy, and these will all converge soon anyway. The GenAI advantage goes to neither. Is there a silver bullet to close the gap? Well, Salesforce had a decade headstart in a race of unknown length. To overtake someone with a decade headstart, they would literally have to stop and wait for you. Salesforce will not do that, so overtaking is probably not a realistic thought.

What, if anything, can Microsoft do to affect the trajectory? We first have to look at what they have tried. Lower Pricing, the key to Walmart’s success, does not seem to have made much of a dent in Salesforce’s high-affinity user base. Of course, none of the enterprise customers coveted by both are paying anything close to retail. I assume there is a lot of price-matching going on, neutralizing that aspect. Instead, you have to look at what Salesforce does better. It’s not the product; they are both basically the same. So what is it?

Salesforce has always done two primary things better than Microsoft and still does them better today: Sales and Marketing. Salesforce’s marketing is purpose-built to create brand affinity. On the Sales front, Salesforce simply outsells Microsoft and their vast partner network… consistently. This can be partly attributable to the brand affinity created by their superior marketing efforts, but it mostly boils down to better sellers. A good seller can outsell a bad seller, even if he has an inferior product. If the products are essentially the same, the bad seller does not stand a chance.

Microsoft’s best opportunity to grow will continue to be the smaller-than-enterprise customer, where price matching is not as interesting to Salesforce. Even a bad seller with a lower price can win sometimes.