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Salesforce.com (NASDAQ:SFDC) may be performing well in the enterprise software market now, but at least one analyst fears for the software-as-a-service provider’s future with rival enterprise giant Oracle looming large.
Global Equities Research analyst Trip Chowdry claims that prospective customers see limitations in the multi-tenancy architecture Salesforce.com used to put itself on pace to earn $2 billion in revenues this year. This view, cultivated with the help of some 450 enterprise customers and 10 CIOs, is causing some to look at a virtualized approach espoused by Oracle and its forthcoming Public Cloud solution.
Unveiled at Oracle OpenWorld Oct. 5, the Public Cloud offers applications, middleware and database software hosted and managed by Oracle. The Public Cloud also includes social networking software on the front end.
“Customers we spoke to find Oracle’s architectural approach to be superior to that of Salesforce.com as it provides a better isolation and control environment vs. Salesforce.com,” Chowdry wrote in a research note Oct. 30.
Moreover, Oracle will launch Web-based enterprise apps covering customer relationship management (CRM), human capital management (HCM) and social network tools. Salesforce.com does not truck in HCM, which Chowdry said could yield reduced enterprise wins for the company versus Oracle.
Also, Oracle’s cloud database is likely to be superior to Salesforce.com’s Database.com offering, given its decades of experience in the space. Chowdry explained that Oracle has access to source code and has optimized the database all the way from the chip level to the cloud level to provide more efficiency.
Oracle isn’t the only player competing with Salesforce.com. Chowdry noted that VMWare’s Cloud Foundry and Red Hat’s Open Shift are all picking up momentum at the expense of Salesforce.com’s own platform-as-a-service (PaaS) offering of Force.com and Heroku.
“These competitive challenges may reduce Salesforce.com’s win-rates, lengthen sales cycle and put margin pressure resulting in multiple compression,” Chowdry said.
Salesforce.com declined to comment on Chowdry’s report, in which the analyst reduced his estimates for the company’s next two fiscal years and downgraded his price target for Salesforce.com to $95 for the next 12 to 18 months.
Oracle Gunning for Salesforce.com
However, Beagle Research analyst Denis Pombriant noted all of the vendors in Chowdry noted in his report have dabbled in the cloud at some point. However, many vendors have also moved the data center to another location without realizing the improvements that Salesforce has delivered. Pombriant told eWEEK:
“The issue is that all the other approaches replicate the problems of the data center, then export them, including the ability to make spaghetti code that, down the road, is unmaintainable. Some companies will hear the siren song of this brand of cloud computing and move their operations to the cloud. But they will discover that they’ve only saved on the cost of hardware, licenses and other operational things like labor for exotic specialists who work in the stack. But they’ll incur the same overhead in writing application code, versioning it and maintaining it. In other words, they won’t get the full benefit of a more turnkey approach offered by Salesforce.“
Ultimately, Pombriant said pitting several companies versus Salesforce.com and declaring the company troubled is unwise.
“Salesforce might be outcompeted for a specific deal against any one of those vendors but when you combine everything and ask which vendor has a vision of the future on all those fronts and is executing on the vision, you have to give Salesforce very high marks,” he said. “I think Salesforce wins the big picture debate and that savvy CIOs will see that and act accordingly.”
Pombriant has good points, but in a follow-up note Chowdry notes the history of Oracle putting successful companies in its sites and using them for cannon fodder en route to acquiring them.
“Sometimes we need to look at the past to anticipate Oracle’s future actions,” Chowdry claimed, pointing to Oracle crushing PeopleSoft, Siebel Systems and BEA Systems before buying those companies for a much lower price.
To wit, Chowdry said Oracle could acquire Salesforce.com in a few years and for roughly 50 to 60 percent of Salesforce.com’s current share price of $130.