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A research report by Summit Strategies achieved a new high in market-analysis hyperbole in July when it suggested that Salesforce.com has an opportunity to become the “Microsoft of the on-demand software world.”
The theory, propounded by Summit analyst Tom Kucharvy, holds that Salesforce.com is becoming a de facto operating environment for on-demand software applications.
The Salesforce.com CRM (customer relationship management) platform, including the Supportforce customer service applications, the Customforce application customization tools and the Multiforce on-demand operating system, will allow the company to become a market-dominating aggregator of complementary hosted applications—its own and those of its partners.
In essence, third-party software vendors in the fields of CRM, ERP (enterprise resource planning) and others will use the Salesforce.com platform because it provides a ready-made hosted data management-data sharing environment, provides the widely touted cost advantages of on-demand software, and can be readily customized to fit their needs.
Salesforce.com is already heading in this direction because other on-demand software applications are linking up with the Salesforce.com platform. The report also says Salesforce.com is claiming that more than 150 add-on applications have been developed for its platform and that it serves an expanding community of more than 8,000 corporate and independent software vendors.
The Summit report clearly notes that Salesforce.com has a long way to go before it demonstrates that it really has a business strategy that can make it market-dominating company. It also says Salesforce.com has to successfully carry out several steps if it is to have any hope of resembling even a pallid shadow of Microsoft in the software-as-a-service space.
The first step involves the most formidable barrier that Salesforce.com has to overcome: It hasnt clearly stated which application segments it intends to develop for itself and which it will let its partners pursue.
Its hard to believe that Salesforce.com could even begin to become as successful in the software industry as Microsoft if it is limited to the CRM niche. Right now Salesforce.com hasnt even achieved the distinction of being the Siebel Systems of CRM, at least in terms of market capitalization.
Salesforce.com will have a hard time becoming a leading application platform provider if its partners suspect that its going to compete with them in specific market segments, the report notes. Salesforce.com should tell the world whether it is going to branch out into other applications
The problem is that Salesforce.com would be competing not only with any potential partners but also with some of the biggest names in the software industry for any of the market segments that are worth considering, including Oracle, SAP and Microsoft itself, to name just a few.
Next Page: Keeping the revenue flowing.
Diversity to Grow
The report also suggests that Salesforce.com create a new revenue model that ensures that it can make enough money from being a platform provider for third-party applications when these partners have no need to pay for using Salesforce.com core CRM applications. Generating this revenue could make Salesforce.com less attractive as an application platform or application incubator for ISVs.
Salesforce.com has grown remarkably since it was founded six years ago. It now claims more than 267,000 customers at more than 15,500 companies. It has a market capitalization of $2.5 billion and generated $176 million in revenue in fiscal year 2005.
But the fact remains that it has built an expandable platform to support what is essentially a niche application market–CRM. Siebel Systems is the cardinal example of what frequently happens to a company that ties itself to a single market segment in the software industry–it stagnates.
The biggest and most successful industries are those with the most diversified product lines, whether they developed those products themselves or acquired them from other companies. Microsoft, IBM, Oracle, SAP, Symantec, Cisco–and this list goes on–all fit this profile.
Salesforce.com may have an advantage in that it can buy out the best applications that its partners develop on the platform.
But whether Salesforce.com can rival what Microsoft, Google and eBay have done to build dominant market platforms seems quite a stretch at this point.
There is a fundamental difference between what Salesforce.com is doing and what these three giants have accomplished. Their platforms serve fundamental market needs, whether it is a PC operating system, search technology or auctions.
While customer service and marketing are essential functions for any company, theyre still not mass-market items that virtually any consumer could use. The fact remains there are a lot of CRM products out there sold by many companies, some of them much bigger and richer than Salesforce.com.
To really succeed in the vision that Summit Strategies has conjured up, Salesforce.com has to go way beyond its fundamental identity as a CRM platform to become a universal on-demand application development and deployment platform.
Microsoft Windows has held that distinction for the best part of two decades in the field of shrink-wrapped, proprietary software.
On-demand software as a service has to become the dominant distribution model in the industry for Salesforce.com to have any chance at all of becoming one of those giant industry leaders.
Microsoft, Oracle, SAP and many others will have something to say about that before it comes to pass.
John Pallatto is a veteran journalist in the field of enterprise software and Internet technology. He can be reached at [email protected].