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DAILY NEWS AND INFORMATION
FOR THE GLOBAL GRID COMMUNITY / OCTOBER 6, 2003: VOL. 2 NO. 40
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Special Features:
SALESFORCE TAKES ON BIG COMPANIES
WITH BIG TALK, BIG RESULTS
Salesforce is a bold company. While technology bigshots have touted utility
software -- renting software instead of buying, and accessing via the Web in
lieu of downloading onto a server -- as a definite future trend, Marc Benioff
and Salesforce have centered the entire company around it.
Benioff is alright with his chances, however. Utility software virtually
eliminates the high overhead costs of buying new software, and all that such a
purchase encompasses, including buying upgrades and paying for maintenance. It
sounds appealing and, if it takes off, current software giants could be
devastated -- leaving only Salesforce standing. This would leave Benioff, who
regularly sports a button with the word "software" crossed out, holding all
the cards.
His ambitions for Salesforce have him taking on some of the most powerful
players in the technology market -- even the smallest of which are 15 times
his company's size -- and there are major doubts about whether he can truly
deliver. But at a time when larger enterprise software firms are fighting over
a shrinking pie and waging pitched consolidation battles, Salesforce is
undercutting them on price and enjoying eye-popping growth.
The industry Benioff is trying to change, narrowly defined, is the CRM
business, which was pioneered and is still dominated by Siebel Systems. Last
year Siebel had $1.6 billion in sales, down from $2 billion in 2001.
Salesforce is built on the shoulders of Siebel. That company's founder, Tom
Siebel, previously worked for Larry Ellison at Oracle. So did Benioff.
After writing code for Atari game consoles as a high schooler and working
for
a summer at Apple Computer during college, Benioff joined Oracle, and
eventually became one of the most successful sales execs in its history. In
1994, he was one of seven seed investors in Siebel. Five years later he left
Oracle, sold the bulk of his initial $50,000 Siebel stake for more than $25
million, and founded Salesforce.
From the start, Benioff has gotten mileage from a fundamental
characteristic
of the traditional CRM business: For a lot of customers, it has been a
nightmare.
Many clients have found CRM too expensive and too complicated; research
firm
Gartner estimates that 42 percent of all CRM software sold is not even being
used. Benioff sells his Web-based approach as the antidote to CRM's problems.
Salesforce's software helps salespeople manage their accounts, track leads,
and evaluate marketing campaigns.
Siebel, SAP, and other CRM stalwarts typically send in scores of
consultants
to get their systems up and running. Salesforce does the same thing with
hardly any consultants, since it hosts the apps on its own servers. There are
no associated hardware or IT labor costs.
Customers access the software over the Web and pay by the drink. When a new
version comes out, everybody gets upgraded at the same time, for the same
price as before. The software is so cheap that sales managers often sign up
for it themselves, bypassing their IT departments. Treacy himself is a
satisfied customer; his small consultancy recently bought the Salesforce
service.
But as Salesforce goes after bigger and bigger accounts, the sales
challenges
mount. The company was recently put through the wringer to get its first
contract for 1,000 users at SunGard Data Systems, which provides data recovery
and other IT products to financial services firms.
To keep winning those big accounts, Salesforce will have to overcome
several
perceived disadvantages to its software utility.
A list of concerns includes: security, lack of control, problems with
customizing, the difficulty of integrating the software with other corporate
applications.
Siebel, like Salesforce, specializes solely in CRM, but says its software
is
easily customizable to meet whatever demands a customer has.
Benioff, of course, has an answer to every objection. To protect customers'
data, Salesforce employs state-of-the-art encryption and security systems.
And, at the insistence of large corporate customers, Benioff recently built a
redundant data center in Dublin, Ireland.
He is also addressing the one-size-fits-all uniformity of Salesforce's
software: The recently released S3 gives users more flexibility to tailor the
software to their needs. It contains upgraded features meant to allay concerns
that Salesforce software doesn't have the firepower of more expensive CRM
packages from Siebel or SAP.
In addition, Salesforce has come up with Sforce, a new set of Web-based
application development tools that enable programmers in corporate IT
departments to more easily integrate Salesforce software with data from other
vendors' enterprise apps. Both corporate customers and other software partners
can also use Sforce to build their own hosted applications on top of
Salesforce's.
Benioff might well want to expand his company's scope, especially with a
hotly
anticipated public offering in the cards. But an IPO may not happen anytime
soon: Benioff says the market is too uncertain, and at the moment, the company
is generating plenty of cash to fund operations.
For now, Salesforce is focusing on strengthening its business and expanding
overseas (the service is available in nine different languages, including
Chinese and Swedish).
Cakebread, the CFO, is talking about other looming challenges. Larger
opponents like SAP and Oracle that sell more than just CRM software will often
throw in CRM for free. Beyond that, the big players aren't oblivious to
Salesforce's inroads.
Siebel, which tried a few years ago to set up a Web-based service similar
to
Salesforce's, only to shut it down after pouring more than $35 million into
it, is working on a revamped version, according to a Siebel customer who has
been briefed on the project. (Siebel declined to comment on any utility
software plans.)
Oracle offers its entire suite of business apps as an outsourced service;
Chou, who runs the operation, expects it to be a billion-dollar business for
Oracle in three to five years. Microsoft and SAP offer hosted software through
partners.
The question is whether the offerings will provide Salesforce's rivals with
incremental new revenue or become the dominant way they do business. If it's
the latter, Cakebread says, the transition from getting paid in large lump
sums to getting the smaller, steadier trickle that comes from a subscription
service could prove painful for the larger players. (The big guys currently
charge users no differently for hosted services than for traditional packaged
software.)
Microsoft fights tooth and nail with Salesforce for CRM customers, but the
two
companies are actually partners when it comes to software development.
On the other hand, Benioff has achieved a valued goal of marketing: He's
drawn
a lot more attention to his company than its current stature might warrant. He
may not reach some of his more grandiose goals, but Salesforce should be a
billion-dollar company in five years.
Whether that happens or not, the distance Salesforce has traveled in its
short
life makes it clear that there's a lot more to Benioff and his company than
bluster. In any case, Benioff isn't likely to change his style soon.
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