The Secrets behind Salesforce.com’s Strategy

If you missed the biggest cloud computing conference, salesforce.com’s Dreamforce 8, (Twitter: #DF10) you missed an opportunity for insights into where CEO Marc Benioff is leading his company. The mission of salesforce.com, inc., goes way beyond the sales force automation that made its name, as I just discussed. That should not be surprising if, as I have, you followed its announcements and partnerships over the years. Now, I admire the efforts of salesforce, and we are a customer, but someone needs to fully analyze the implications of its actions – or lack of them – in many areas. For one, my colleague already assessed its analytics and support of dashboards that has room for improvement.

This task isn’t easy. Salesforce does not take constructive criticism willingly and in fact is the best at turning criticism into comedy, usually in a funny way. This was evident in the recent advertisements Benioff used to ridicule Microsoft’s new cloud marketing. This one-upping in competitive efforts is the same sort of antagonism that salesforce once used to beat up on Siebel. Against the background of Microsoft and salesforce.com suing each other over intellectual property, this act on stage at Dreamforce was quite amusing as Microsoft has been working hard to tout its Microsoft Dynamics CRM and cloud computing. It will take some serious work by Microsoft to build credibility and gain momentum against salesforce. So far Microsoft has performed limited reach to us analysts to examine and perhaps recommend its solutions, has limited response to requests for information and has made it impossible to interact with its front-office applications team. Salesforce is the complete opposite, encouraging analysts to engage with as many people as possible in an open forum.

Foremost salesforce is looking to gain universal acceptance of cloud computing, especially in the public cloud arena, and announced a range of new products to enter the database market, go deeper into the application development market and even help with the assembly and development of applications. It is making it much simpler for power users to lay out and assemble what we call Information Applications. This new generation does not require trained application developers and can help business units iterate and improve their efforts more easily. It’s a step forward for business but needs to be tempered, as many organizations do not realize the care and support still required, let alone the issues in data readiness, integration and migration.

This year’s Dreamforce took a big step toward crowning salesforce.com as the Cloud Company. As I have stated, it is more than time to change the company’s name as it is now an enterprise software company and not just an SFA or CRM applications company. Salesforce has had and continues to expand a much larger agenda than many people realize. The leadership believes their destiny is to be Microsoft or Oracle in the cloud, with applications, tools, a platform and database technology. This is the secret mission it has been pursuing for years. Let me unlock some other secrets that have come to light as salesforce continues its march to global domination in cloud computing.

Collaborating for Free: Salesforce announced Chatter Free to spur viral adoption of its technology across the enterprise, although it charges for additional seats beyond users licensed for the salesforce.com application. This sounds great, but the real functionality is in Chatter Plus, which costs $15 per user, so the plan is to hook as many as possible on the free version to build a groundswell for selling an enterprise version. This is evident in the website information about Chatter, which reveals that you need to purchase the upgrade for anyone not on salesforce.com to get true business collaboration. This move is meant to go beyond IBM, Jive, Microsoft, Oracle, SAP and others to gain adoption across the enterprise. If you think about embracing Salesforce Chatter, I warn you to consider whether salesforce will continue to innovate with this technology after it acquires a percentage of market-share or will let it limp along like its SFA applications.

Simplifying the Database: Salesforce announced database.com, which simplifies the setup, use and pricing of databases for cloud computing. Salesforce attacks the daunting complexity and high costs of the Microsoft and Oracle databases for general business needs. (Oracle proposes mySQL, acquired with Sun Microsystems, as a low-cost, open source-based technology to provide the basic database functions, but as part of Oracle it has become less simple to use even as it chips away at the core margins of the big database.) Salesforce is targeting a large community that needs a basic database to support anything from using mobile applications to building cloud applications on platforms like Amazon EC2 and others. Salesforce is serious about taking this low end of the market, and it does deliver much of what you need for a low price. There is a challenge in planning for storage and growth of data, but historically salesforce has made good money from organizations that need more storage for their applications. Marc Benioff has had this part of its strategy for some time and was part of the origins of salesforce and its efforts with the CRM applications.

Dominating Website and Application Development: Salesforce announced a series of new services here, including Siteforce to further its presence in building websites and Appforce to create and deploy applications in its cloud computing environment. Realizing that building bridges to environments other than its own is critical, salesforce announced VMForce, a service that provides methods for the millions of Java developers to run their applications on Force.com. Salesforce also knows that getting more ISVs onto its platform requires that it to provide more value-added services, from provisioning to upgrades. This is a longer-term project in which salesforce hopes to undercut the basis of Microsoft and Adobe in helping organizations build sites for their internal and external Internet presence.

Buying Big into Ruby: Accepting that diversity and choice are critical for its future, salesforce is embracing the Ruby language, spending more than $200 million to acquire Heroku and its platform, which already has over 100,000 applications and was a future threat to Force.com as the center of gravity for application platforms in the cloud. This expansion validates its next-generation Force.com 2 environment by incorporating the future of Ruby-based cloud platforms. Those of you who are not aware of Ruby now probably will be at some point, as it becomes important to the future of application assembly and scripting for cloud computing.

Supporting the Enterprise: As the breadth and depth of the salesforce portfolio expands from applications to collaboration, platform and database, so will the need for managing them. Salesforce has addressed this by working with BMC to create RemedyForce, an IT service management solution that can meet the needs of the enterprise. It will help organizations reduce costs of operating IT by providing applications in the cloud rather than installed in the IT organization.

These are a few of the secrets of salesforce at the end of 2010, and making them a reality in 2011 is the company’s next step. Perhaps it’s time for you to evaluate what your software ecosystem will be as salesforce.com challenges IBM, Microsoft, Oracle and SAP. What salesforce has not done is determine how these applications and platform integrate from a data perspective which has many customers wondering if the strategy is complete. Luckily the partners like Informatica, IBM Cast Iron, iWay Software, Jitterbit, Pervasive, SnapLogic and even Boomi who was acquired by Dell all have an opportunity to fill the salesforce void of dealing with all things data from a governance, integration, quality, migration and even for synchronization.

From an applications perspective in the areas of marketing, sales and customer service, you will not derive much immediate value from these secrets because salesforce’s IT agenda looks beyond applications; those are being driven more by its partners. Also consult my recent analyses of Oracle and SAP, both of which are investing further into CRM with innovations that likely will outpace salesforce in 2011 and pose new competitive threats to the core customer base that built the company. At the same time salesforce believes they can continue to strategically focus on converting the Siebel customer base who might be a little tired in waiting for Fusion CRM for sales that hits the market in 2011. This will result in a pretty interesting new year that will provide salesforce new growth but also growing pains in protecting its core applications business and customers from their own level of disenchantment in the IT and enterprise software domination agenda.

Let me know your thoughts or come and collaborate with me on Facebook, LinkedIn and Twitter.

Regards,

Mark Smith – CEO & EVP Research

Can Your Sales Force Trust Salesforce.com?

At the 2010 Dreamforce conference (Twitter #df10) in San Francisco, about 18,000 people gathered to learn about the latest in salesforce.com’s applications and technology. Attendees from sales organizations might have been looking for some depth on the next generation of applications to support their sales processes or what the vendor will do to help sales managers manage, sales reps sell products and sales operations support it all. Certainly it’s reasonable for a sales force automation (SFA) customer to expect that.

But it was not to be. Salesforce.com has moved beyond the focus of its CRM efforts to promote Chatter 2 and the advanced Chatter.com that will be freely available to its customers for use across the enterprise in 2011. As well salesforce brought forward advances in supporting databases in the cloud with database.com, in developing applications in the cloud with its acquisition of Heroku, in developing websites with siteForce.com and in building broader portfolio partnerships with BMC and VMWare.

I‘m guessing that if you are in sales and attended Dreamforce, you enjoyed the fanfare, the concert with Stevie Wonder and the fancy parties. But if you have attended in past years you probably also noticed that the conference that was dominated by sales and marketing organizations in the beginning has undergone a transformation that resembles the changes Siebel Systems made to move beyond CRM as its conference grew huge, not to mention its current role at Oracle OpenWorld. It’s an interesting comparison since those two CRM applications companies, now one, were attacked and chastised by salesforce and its outspoken CEO Marc Benioff. You might remember that at Siebel’s conferences salesforce.com people used to march back and forth and hassle attendees with its No Software marketing campaigns.

You might ask why salesforce.com has moved beyond the CRM focus and only makes incremental improvements to its SFA solution. The answer lies in two phrases: Cloud Computing and Revenue. First, salesforce sees itself as the dominant cloud computing platform, with a database, tools and applications, equivalent to IBM, Microsoft, Oracle and SAP in the world of purchasing licenses and installing software on-premises. To bolster this ambition requires salesforce.com to diversify and support a broader enterprise software strategy. Yes, I said “software” – it’s clear now that the No Software company rents software whatever its marketing says. Second, there’s a revenue opportunity in taking on a larger enterprise software strategy – it provides access to organizations capable of larger IT spending and direct competition with the likes of HP, IBM, Infor, Microsoft, Oracle and SAP. In this scenario the incremental spend of most sales organizations pales in comparison. In addition salesforce markets and sells its SFA to meet the needs of the entire sales force but in fact it does not. Though it has dozens of partners with applications for sales, it rarely does more than mention the catalog on AppExchange rather than provide a blueprint or framework to help potential customers understand the options available.

So if you are expecting more from salesforce.com for your sales force, I suggest you lower your expectations and reconsider what you need to reach the next level of efficiency in sales processes for managers and representatives. We call this sales performance management, and it addresses all the tasks and processes across a sales organization. If you want to do this, you’ll need to examine the full range of sales activities that our research has identified and advances in both pre- and post-sales activities. These include the pipeline, forecasting, coaching, playbooks, pricing, compensation, incentives, rewards, territories and quotas. In addition you’ll need sales analytics that address the demands of sales operations for interactive analysis, modeling and planning and of sales managers to understand, monitor and improve sales effectiveness. With a comprehensive approach you’ll find that applications designed for sales can draw more value from the silos of spreadsheets, reports and presentations that currently dominate sales processes. As for analytics, my colleague has assessed those from salesforce.com and finds plenty of room for improvement (See: “Salesforce Analytics Identify a Break in the Clouds“).

Now I do think that the advances in collaboration with Chatter can help sales, and you can do the basics in its dashboards. In addition it is good the company is advancing its functionality on mobile technologies like smartphones and tablets like Apple iPad. But these can’t deliver the kind of innovation and improvement you will need to manage and operate sales more effectively. You deserve better, but you will have to seek it elsewhere.
If I had a voice at salesforce, I would argue to put more resources into the Sales Cloud and to promote its partners more articulately than it does today. I would also ensure that the education at the conference is relevant and deeper for the sales organization. I’d say next year’s Dreamforce should have a complete Sales Cloud area on the exhibit floor, including partners, so that collaboration can occur more easily in sales organizations. The most recent exhibit floor was a maze that forced customers to go on a Mission Impossible to find what they wanted. Finally I wonder whether salesforce is worried about doing what its predecessors in SFA did in limiting innovation – which gave it the opportunity it needed in starting out.

Salesforce.com eventually will encounter new competitive pressures to advance SFA further. Oracle’s Fusion CRM for sales has addressed many of the challenges in functionality found in Oracle Siebel, Oracle CRM and Oracle CRM On-Demand, as I reviewed recently. Its focus on planning, prospecting and productivity with strong sales analytics technology foundation that integrates predictive analytics might give it an opportunity to fend off salesforce’s approach to its customers. Others in SFA such as CDC, Infor and SAP (See: “SAP Energizes CRM with Analytics and Interactions, But Will It Work?“) have not progressed significantly. At the same time new sales application suite companies have been advancing: Callidus, Merced Systems, Synygy, Varicent and Xactly are beginning to address the need for more pre-sales functionality. In addition other partners who were at Dreamforce include Cloud9 Analytics for forecasting and pipeline management, Sant/Kadient for sales playbooks, Terralign for territory management, Camelon for quoting and pricing, iWay CEP Enable for getting customer notifications from within the enterprise (which I assessed) in Salesforce Chatter, and Jitterbit for gaining dynamic access to related information in the enterprise. All these dedicated solutions integrate to the salesforce.com platform.

There is some indication that salesforce might decide to make acquisitions, but so far there is no hint of which companies and will it have direct value for sales organizations. And maybe it is time for the company to change its name to represent the new broader focus and the wall street ticker symbol (NASDAQ:CRM) that they are publicly traded under. This transition from a focus on helping sales is nothing new as I first identified this in my analysis in 2007, so this is a more vocal warning for those of you who care about advancing sales organizations effectiveness and efficiency. For the time being, I recommend developing your agenda for sales applications and broadening your horizons beyond salesforce.com to get what you need and not just what you will get from them.

Let me know your thoughts or come and collaborate with me on Facebook, LinkedIn and Twitter.

Regards,

Mark Smith – CEO & EVP Research