During a luncheon in New York on Feb. 27, Salesforce.com CEO Marc Benioff outlined the companys formally named Salesforce.com 2.0 Strategy, which is designed to take the company into the next decade (Salesforce.com will have its 10-year anniversary in about two years). The strategy has two basic prongs: vertical applications that build on Salesforce.coms CRM (customer relationship management) core, with a focus on financial services; and the platform, which includes the Saleforce.com "Circle of Success."
The idea behind the Circle of Success starts with applications—Salesforce selling them and developers building them using Apex, the companys new development language and platform. The rest of the circle includes using ideas generated by customers and developers building applications on Apex, advertising them on AppExchange, and using AppStore to both market and sell the applications.
The concept is that all the capabilities will intersect to form a continuous cycle of idea generation, application development and sales, but in a democratized fashion, since Salesforce.com said it wants to be open, in order to foment the next Salesforce.com.
"When we first started Salesforce.com we had to do a lot of heavy lifting—basically, complex software programming work and hardware engineering … and much of it had to be done before we could build the core CRM application that inspired us in the first place," Benioff said during the Feb. 22 earnings call. "No developer has to do that again. … When people ask me what is next for Salesforce.com, I say try another question: Who is the next Salesforce.com? Because it is that next-generation, on-demand developer and ISV who is developing, marketing and deploying on our platform, and that is what is next for Salesforce.com."
The strategy gives ISVs the wherewithal to develop third-party applications around Salesforce.coms offering.
During the Feb. 27 luncheon, Benioff also unveiled a new Wealth Management Edition that does two things: It adds, finally, vertical functionality to Salesforce.coms core CRM software—something the company said it wouldnt do in the past—and sets the stage for future vertical offerings.
The two concepts are inextricably linked, according to Benioff.
"We have two businesses—CRM and platform," Benioff said. "AppStore is the monetization to the platform. So we want to get ISVs and others to build on our platform and monetize that and turn it into a separate, second revenue line for Salesforce."
The Wealth Management Edition is a good example of how Salesforce.com wants to add cash to the bottom line of both CRM and platform. With the software itself, Salesforce.com is essentially going after Bloomberg, whose proprietary terminals are used by a large number of Wall Street traders and financial advisors to get live feeds on financial data and news. Salesforce.coms Wealth Management Edition, aimed at the investment advisor set, offers financial and news feeds, with the added functionality for CRM—a key capability as financial services companies are increasingly forced to become more customer-centric.
Developed in conjunction with Dow Jones for news feeds and Thomson Financial for financial feeds (as well as Dell and Cisco Systems for hardware and communications functionality), the software taps a new vein for Salesforce: financial services. Merrill Lynch was announced Feb. 27 to be the companys biggest customer, with a 25,000 seat subscription for the Wealth Management Edition.
Benioff said Salesforce.com will continue to develop additional apps around financial services, as well as other verticals, and will look to partners to develop add-on applications, which is where the platform play comes in.
The vertical approach is a good one, according to Joshua Greenbaum, principal of Enterprise Applications Consulting. But it may not be enough to diversify Salesforce.com from its core product—something it needs to do in order to grow beyond the commodity of on-demand CRM, he said.
"Salesforce desperately needs to spread out from its core and do something that adds strategic value to basic CRM," Greenbaum said. "The irony of going vertical is thats where Siebel was going [before it was acquired by Oracle]. But I dont think it pulls Salesforce.com out of a dead-end position in the market, because vertical is not going to be enough."
Greenbaum and others point out that Salesforce will face stiff competition in the coming year, with big-name vendors such as SAP, Microsoft and Oracle (with technology from the Seibel acquisition) all coming to market with on-demand offerings—in a sense commoditizing the very capability that catapulted Salesforce to poster child status for the on-demand movement. While all three companies are stalwarts in the software industry—and anathema to the on-demand model, Benioff has often been quoted as saying—they will be able to offer CRM on-demand that is actually integrated to their ERP (enterprise resource planning) products, according to Greenbaum.
Arguably what Salesforce.coms competitors do not have is what the company has defined as its next phase of evolution, Salesforce.com 2.0: a development platform, marketplace and e-commerce engine fueled by an idea exchange that could help keep a whole cycle of cash for apps rolling in.
"Developers can build from Delhi, from Shanghai, from wherever they are," Benioff said. "They can build at night, around our platform. Then they can put it on AppExchange; our customer comes along, they buy that application and the payment goes to the developer. Thats a whole new way for developers to think about making money. And its all in the Salesforce environment. From idea network to AppExchange, were getting on the road to get going in this area."
Its still not clear what Salesforce.com will charge for its development services, as well as the AppStore marketing and monetizing services. If the Wealth Management Edition, which can be customized using the Apex platform, is any indication, it will be expensive. Wealth Management is selling for $500 per user, per month—well above the companys Unlimited Edition of CRM, which sells for $250 per user, per month.
Investment analysts were mixed on Salesforce.coms latest results and prospects for the future. Mark Verbeck, an analyst for Cantor Fitzgerald, wrote in a research note released Feb. 22 that Salesforce.coms outlook for 2008 included no "clear term catalyst" for revenue growth. Nonetheless, Verbeck maintained his buy rating for Salesforce stock, noting that the companys nascent efforts to expand in the market could fuel growth in the future.
Friedman Billings Ramsey analyst David Hilal wrote in a note also released Feb. 22 that heavy spending and heavy competition will continue to drag on Salesforce.coms profitability. "We believe the increased spending is the result of an increasingly competitive market," Hilal wrote. He gave an underperform rating to the companys stock.
Others—particularly ISVs that will have the opportunity to develop applications using Salesforce.coms on-demand infrastructure—said they are much more optimistic about the companys 2.0 plans.
"When we went to Dreamforce [Salesforces annual user conference] in October, there was a fairly large group of developers there—some people that are really smart—and we pretty much all sat in the audience with our jaw dropped at what Salesforce did from a technical standpoint [with Apex] and what you could do on your server," said Bill Emerson, a principal with Salesforce.com partner ForceAmp.com, based in Denver. "That really blew us away. I felt we picked a pretty smart technology partner—theyre doing stuff I am not even sure how to do."