Cost Leadership & Economies of Scale

A cost leadership strategy focuses on reducing economic cost to provide a firm with a competitive advantage over its competitors. One of the main forces that provides a firm with a cost advantage is economy of scale. Unfortunately, Salesforce.com, a company that boasts its ability to help its customers achieve economy of scale, has not been able to capitalize on any kind of economy of scale itself. According to an article on YCharts, Salesforce's sales and marketing spending as a percentage of revenue continues to rise year after year. Research and development costs as well as general and administrative costs have all gone up as a percentage of revenue over the past two years, and it should be noted that revenues for Salesforce increased by 74% during the same two-year period.

Below is a comparison of some key statistics taken from Yahoo Finance:

As mentioned in previous posts, once Salesforce can vertically integrate by migrating its software from Oracle's servers to its own servers, it will be able to capitalize on an economy of scale that, until then will be difficult to achieve.