Salesforce.coms Apex: Software Incubator or Company Store?

 
 
By John Pallatto  |  Posted 2007-01-17
 
 
 

Salesforce.coms Apex: Software Incubator or Company Store?


SAN FRANCISCO—Salesforce.com is promoting its new Apex application development platform as a business incubator that will free startup software companies from the financial and management burden of having to first build up its own data center infrastructure.

The company claims that the Apex on-demand programming platform and language will give entrepreneurs and developers an opportunity to create "the next Salesforce.com."

The startups certainly have a lofty example to follow, since Salesforce.com has built up its on-demand customer relationship management service to the point where it is claiming well over 500,000 paid subscribers. In 2005 Salesforce.com branched out by introducing AppExchange, which gave third-party developers an online marketplace for add-on applications that run on the Salesforce.com platform.

Released Jan. 16 as part of the Winter 07 release of the Salesforce.com package, Apex provides Web services APIs, real-time messaging and application integration, and the Apex programming language code to allow developers to start building applications that are integrated with the Salesforce.com infrastructure.

The Apex language was released as an early developer preview, and Salesforce.com plans to release an Apex beta to customers "later in 2007."

With Apex, developers create entirely new application software startups without the huge up-front expense of assembling the myriad system components and services—such as databases, storage and security systems—that support their business applications.

Instead, developers can focus on designing an entirely new application designed to serve an innovative business model.

But it will be interesting to see whether Apex eventually serves as the incubator for a "new Salesforce.com" with a financial run rate of $500 million a year.

Click here to read about the introduction of the Apex platform in October 2006.

In some cases it might be the technological equivalent of the old company store, in which the customers are so locked into the resources that Salesforce.com provides that they will never be able to spin off into a prosperous independence.

Many small ISVs would be content to build a modest application business that generates perhaps $500,000 to $5 million a year in revenue. Some might gradually grow into businesses generating $10 million or $20 million in revenue. For these companies, relying on Salesforce.coms data center and back-office infrastructure makes sense.

But how likely is it that Salesforce.com will be the nest that allows robust $50 million—or $100 million—software companies to fledge? Is it really in Salesforce.coms interest to allow such large organizations to grow on its platform unless it also manages to take a generous financial interest in them as well?

Next Page: Crowding the nest.

Crowding the Nest


A company that starts to grow as large and as rapidly as Salesforce.com could start to push the parent out of the nest.

Companies that believe they have the business plan and the vision to grow up to be a great software company might decide that it is better to bite the bullet and build their own IT infrastructure to have greater control of their own destiny.

On the other hand, its harder than ever for a software company to grow big enough to either go public, get acquired by a larger company or become profitable enough to pay off its venture investors.

Read here about AppStore, a service that enables software developers to outsource their sales operations to Salesforce.com.

Even Salesforce.com knows that it has had to be very nimble to compete with the likes of Microsoft, Oracle and SAP.

Salesforce.com CEO Marc Benioff contends that the greatly shortened sales and deployment cycles of his companys flagship CRM platform along with the allied applications distributed through the AppExchange will allow him to land large blocks of enterprise subscribers faster than any of his competitors.

The evidence of this, he contends, is that Salesforce.com has started to sign on large enterprise customers who are bringing in thousands of new subscribers at a stroke.

On Jan. 16 Benioff disclosed that Salesforce.com has signed Dell as an enterprise CRM customer, bringing in 15,000 new subscribers. In September 2006 Salesforce.com signed a deal with Cisco Systems that brought in another 15,000 subscribers.

It took seven years for Salesforce.com to land a customer on the scale of Cisco with its 15,000 subscribers, Benioff said. But it only took seven more weeks before it repeated the feat with Dell, "and we arent done yet," he said.

Benioff doesnt believe that Microsoft, Oracle or SAP has recently landed new customers on a similar scale for their enterprise applications. Salesforce.com is claiming a total 7,500 customers who account for the 556,000 paying subscribers working with the CRM platform as of Oct. 31, 2006. It is claiming a total of 163,000 new subscribers for the first nine months of 2006.

Benioff also took a swipe at Microsofts next major upgrade of its Dynamics CRM applications, code-named Titan. Microsoft released the code for Titan to about 300 partners on Jan. 10.

Referring to the code as "Titanic," Benioff questioned whether it would ever be an effective competitive challenge to his companys on-demand CRM platform, since Microsoft intends to deliver it under so many deployment models.

Customers will be able to run the software in house; Microsoft will run the code in an on-demand mode and partners will be able to offer the code in an on-demand mode, Benioff noted. He wondered aloud whether any of the three parties would be able to run the software efficiently.

Salesforce.com has relied on the constant expansion of the platform with new features and services to bring in new customers. It is relying on this constant expansion to try to outgrow the likes of Oracle, Microsoft, RightNow Technologies and SugarCRM.

Salesforce.com, as well as all of its AppExchange partners, has to keep growing if they dont want to stumble into oblivion.

John Pallatto is a veteran journalist in the field of enterprise software and Internet technology. He can be reached at john_pallatto@ziffdavis.com.

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