How soon will Salesforce Service Cloud outgrow Sales Cloud?

Phil Wainewright Profile picture for user pwainewright October 1, 2018
Salesforce Service Cloud is growing faster than Sales Cloud, boosted by digital enterprise trends that could soon see it become the largest Salesforce cloud

One of the major engines of Salesforce's growth as a CRM vendor, especially among larger enterprises, has been its Service Cloud customer service automation offering. In a sense therefore, Salesforce is no longer about the sales force — even though that's where it made its name.

For many years now, Service Cloud revenues have grown faster than those of Sales Cloud, the vendor's original sales automation offering. Last financial year, Service Cloud grew 24% to $2.9 billion, while Sales Cloud grew a more sedate 16% to $3.6 billion. So far this financial year, the gap has been closing even faster. That suggests Service Cloud is less than two years away from overtaking Sales Cloud to become the leading cloud in the Salesforce portfolio.

It's not the first time Service Cloud has got this close, but this time there are several factors likely to accelerate its continued growth, while Sales Cloud languishes in comparison. Some of those factors are internal to Salesforce, while others are part of broader changes in the way businesses sell to their customers.

In the grander scheme of things, you can argue this doesn't really matter. Salesforce is already a $10-billion-a-year business, with younger additions to its portfolio such as Marketing Cloud and Commerce Cloud posting even stronger growth. As Mike Milburn, then GM of Salesforce Service Cloud, told me two years ago, it's all about growing Salesforce, whether that comes from Sales Cloud or Service Cloud: "they both help solve a customer’s problem, it’s not an either/or situation."

Nevertheless, the factors that could help Service Cloud outstrip its sibling shed some interesting light on the evolution of Salesforce's product offering and also the market it sells into. There are some potential acquisitions, too, that could tilt the balance back towards Sales Cloud, as happened two years ago after the acquisition of Steelbrick brought configure-price-quote (CPQ) functionality onboard.

Cross-cloud processes boost Service Cloud

One of the emerging factors driving Service Cloud is the new emphasis on forging cross-cloud processes across the Salesforce product portfolio. Rather than seeing each of its Cloud offerings as a separate product, Salesforce has to focus more on bringing different elements together to create a better customer experience, says Chief Product Officer Bret Taylor:

Some of our most sophisticated customers, when they’re coming to us now, more often than not, they’re not coming just for one specific product. [They’re] really looking at broadly how they can transform their customer experience, which almost always involves multiple customer touchpoints — or from our perspective, multiple clouds.

The majority of the use cases for these cross-cloud processes bypass Sales Cloud, instead linking Marketing and Commerce Clouds into Service Cloud. This was particularly noticeable in last week's banner Dreamforce announcement of the Customer 360 data management initiative, which will help match up customer identities across different systems. This capability is particularly useful to mass-market, consumer-facing brands that are reaching prospects and customers at scale, where automation has most impact. Contact is typically via email marketing, social media and mobile apps, and purchases mostly happen online. This significant enterprise market, where Salesforce is winning big accounts, is the realm of Marketing Cloud and Commerce Cloud, with Service Cloud handling pre- and post-sales contact.

Blurred lines between sales and service

Even in industries such as retail or financial services where there's still a role for a sales assistant or advisor, the demarcation lines between sales and customer service are blurring. This is a consequence of the use of digital connections to build a continuous relationship with customers — what we at diginomica call The XaaS Effect — rather than the old-school pattern of sporadic one-off sales. This transformation leads to customer service assistants taking on a sales role as part of their engagement with customers, offering appopriate add-ons, upgrades or renewals. Rather than being an isolated encounter with a salesperson, the customer experience becomes a longer-term relationship that's nurtured by marketing and sustained through customer service. In the Salesforce ecosystem, Service Cloud becomes the cornerstone of the connected digital automation that's fundamental to delivering this continuous experience at scale.

The corollary of this trend is that there's less need for the traditional sales role that Sales Cloud supports. It's not so much that Sales Cloud is making less headway in its market — though it does face strong competition, particularly at the SMB end of the market — rather that its target market is itself in a secular downtrend.

Opening up to SMBs

Another development that's helping to boost Service Cloud adoption is the introduction of an entry-level package designed for SMBs. Service Cloud Essentials became available earlier this year and it's the first time there's been a Service Cloud offering for the SMB sector that can scale up to any size. This gives Service Cloud a new on-ramp that's never existed before.

Historically, Sales Cloud has always had a large volume of smaller customers, whereas Service Cloud has primarily targeted large enterprise. Now it can capture growth companies early in their evolution, with guided setup and Trailhead interactive learning making it easy to get started. The Essentials package is also proving useful for larger companies that want to run a trial of Service Cloud, as while the number of users is limited, the functionality is not.

The introduction of a field service management capability two years ago slightly increased Service Cloud's product footprint, which has also helped grow revenues. But acquisitions are the one route by which Sales Cloud may be able to boost its own revenues and stay ahead of its sibling.

Acquisitions could boost Sales Cloud

The addition of CPQ capabilities after the acquisition of Steelbrick almost three years ago gave flagging Sales Cloud growth a significant boost. This year's acquisition of CloudCraze to add a B2B dimension to Commerce Cloud will indirectly help Sales Cloud close deals. There are two other important components of the Quote-to-Cash process — or as some people are calling it, the middle office — that are not yet part of Sales Cloud.

One of these is sales compensation management, which essentially manages the commissions paid to salespeople. Provided by vendors such as Xactly, CallidusCloud, Optymyze, Capterra and others, this is a field that's becoming more and more closely intertwined with performance monitoring and predictive analysis. Salesforce is already getting into this area, using Einstein AI to make suggestions during the sales process, so it would be logical to extend the product footprint to include compensation.

The other area is contract lifecycle management (CLM), which is an integral part of the quote-to-cash process and is becoming increasingly important as organizations move towards more continuous sales relationships that involve recurring subscriptions and service contracts. Owning this part of the puzzle would give Salesforce ownership of the entire quote-to-cash process, but it does mean taking a step into structured documents. That's outside of its technology comfort zone, but perhaps slightly less so now that it has Quip in its portfolio.

My take

In a nutshell, Service Cloud is on a roll, while Sales Cloud isn't. Widespread adoption of marketing automation and digital commerce, alongside a trend towards nurturing long-term, digitally connected customer relationships, stimulates enterprise investment in customer service automation at the same time as de-emphasizing the importance of sales force automation.

On the other hand, I made a similar forecast two years ago, and then the injection of CPQ gave a significant boost to Sales Cloud growth. Another acquisition could have a similar effect this year. And whatever happens, Salesforce as a whole just keeps on growing ...

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