Salesforce has undoubtedly been a phenomenal success - with a value-proposition targeted at companies' frustration with lengthy CRM installations. Well, once the installation is complete, customers are only going to be satisfied if the product is fundamentally feature-rich. Also, customers in a subscription model are always going to look at the pricing of comparative products.
With Microsoft announcing its entry into the CRM market, SAP entering the On-demand CRM space, and open source offerings from Daffodil and SugarCRM , the added-value provided by Salesforce has significantly diminished. Salesforce has been forced to add value in other areas - which it has tried to do with the Appexchange platform, but I cannot think of any serious venture-funded ISV developing software to be solely on the Appforce platform, especially with so many other CRM products entering the market.
Service delivery has also been a problem in the recent past, with two high-profile outages, after which the company has started disclosing root-cause and service availability at trust.salesforce.com , but not before several blogs started complaining about the lack of visibility and corporate IT departments going into the "I told you so mode".
While the quality of earnings is high due to the subscription model (since customers provide recurring revenue and a huge attrition is unlikely to occur), I am very skeptical that Salesforce deserves a P/E ratio of 151 when even SAP and Microsoft are trading at more modest multiples.
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