Salesforce Lends Credibility to ASPs

Why is this company smiling? John Pallatto, our Enterprise Applications Topic Center editor sees success in the ASP CRM model, with leading the way.

The Application Service Provider sector hasnt exactly covered itself with glory over the past four years. There is a long, sad list of ASPs that have either failed or were bought out to avoid bankruptcy.

But has been a conspicuous exception because it has managed to slog through the tough times until it could achieve a critical mass of steady business growth and profitability. has decisively demonstrated that its on-demand model for selling CRM applications services appeals to companies that dont want to go through the expense and risk of implementing an expensive, full-scale enterprise CRM package. The ASP model allows customers to access only the CRM services they need when they need them.

Along the way Salesforce demonstrated probably more successfully than any other ASP that on-demand software services is a viable business model. It has certainly demonstrated that this model is an effective way for a startup Internet venture to draw a growing mass of customers away from the entrenched enterprise software giants.

Most of the established CRM companies experienced either slow growth or slumping sales during the post 2000 recession. However Salesforce claims it has been steadily gaining customers to the point where it has 115,000 subscribers working for more than 8,000 customers. The company claims to be adding about 300 customers and 5,000 subscribers per month. The company announced it achieved profitability early this year. This has helped boost customer confidence that Salesforce will be around to support its services for the long term.

Its not a coincidence that a few of the industry giants, including IBM, Computer Associates International Inc., Siebel Systems Inc. and Microsoft Corp. have been encouraged to start their own on-demand enterprise software and computing services.

Its not as if the ASP model is something new or even particularly novel. It harks back to the old days of computer time-sharing that are a fond memory for IBM and many of todays veteran CIOs. But it is the Internet that has made this model more practical and economical than ever.

The fact that a significant number of corporate CIOs attended Salesforces inaugural customer and developer conference in San Francisco this week attest to the credibility that the company is gaining with the likes of Nokia Corp., and Advanced Micro Devices Inc.

Siebel, in contrast, has spent much of the last four years bad mouthing ASPs saying they didnt have the products, experience, security or reliability to compete with established enterprise software suites.

But Salesforce certainly has managed to steadily expand and upgrade the sophistication and breadth of its application services so this criticism is no longer relevant.

Now after contending with its own stubborn sales slump, Siebel is offering its own hosted CRM application service and last month announced that it would pay $70 million to buy UpShot Corp., another CRM ASP.

Enterprise software providers are taking an interest in the ASP model because a growing number of their customers are either subscribing to ASPs or taking a close look at them.

Big Wins for Salesforce: AMD, for example, has agreed to acquire subscriptions to Salesforces CRM, sales and marketing applications for 800 customers. This deal alone has the potential to generate at least $1.3 million in sales for Salesforce.

SunGard, a global IT systems provider for the financial services industry, last summer decided to give more than 1,000 employees access to Salesforces sales force automation, CRM, and marketing automation applications. SunGard made this decision after Salesforce was able to convince it its applications services provided a comparable level of security and scalability to any enterprise CRM package on the market.

Another reason why Salesforce is growing is its ability to rapidly add and deploy new features to its applications. It promises to release product upgrades every three months. Those upgrades dont launch a recurring logistical nightmare of shrink-wrapped software CD shipments. Also gone are the inevitable installation glitches that crop up with each upgrade.

All customers gain access to the product upgrades at the same time whenever Salesforce deploys them on its own servers. Customers dont have to worry about expanding their server installations whenever they add new applications or hire more employees. Salesforce takes care of that at its headquarters.

Salesforce executives acknowledge that the improving national economy is as much a factor as the increasing sophistication of is services in the companys current success in attracting and retaining new customers.

For all of these reasons executives were boasting, probably with reasonable justification, that within a few more years the company could become the first pure-play ASP to have more than 1 million subscribers. Enterprise Applications Center Editor John Pallatto is a veteran journalist in the field of enterprise software and Internet technology.

John Pallatto

John Pallatto

John Pallatto has been editor in chief of QuinStreet Inc.'s since October 2012. He has more than 40 years of experience as a professional journalist working at a daily newspaper and...