[inthewoods]

The only part I would disagree with you on is that SF.com isn't a significant cost - that's 500 x $100/month or $50,000 a month or around $600k a year. Now I know there would be significant discounts - but you get the idea.

But you are right that the switching costs trump the costs.

For the switch to make sense, I think you need to offer 4x the value to make up for the switching costs. So that can be some combination of cost savings and better functionality.

Salesforce.com is a perfect demonstration of the power of the network effect - the product, in my opinion, has really isn't that great. Yes, it's fairly flexible but feels very dated and the reporting is slow and cumbersome. In theory, their system should be relatively easy to disrupt, but none of the competitors can match the number and level of integrations out there.

A good article about the economics of SaaS: http://pandodaily.com/2013/06/15/what-the-data-reveals-about...