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Weekly Review: Salesforce.com Envy Abounds

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Posted December 17, 2002 By Phil Wainewright     Feedback

Dec. 17, 2002: In this week's commentary: Are Salesforce.com's rivals attacking it out of envy? Of course they are! What ASP wouldn't aspire to that kind of growth, credibility and brand recognition?

Everyone in the ASP business agrees that conventionally installed packaged software is obsolete. So when Salesforce.com issued a press release last week about customer migration from legacy packages such as Siebel and SalesLogix, it was a pretty routine affair. After all, the company's tagline always has been "The End of Software."

Read and React
"Online software, delivered as a service, is not only here to stay, it has just begun its most furious phase of growth. This is a serious business now, with huge potential winnings at stake. Expect a lot more fur to fly before we're done."

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The surprise came two days later when NetLedger issued a release hailing customer migration "from Salesforce.com's legacy, standalone SFA application" (see Welcome to the CRM Jungle). Shouldn't ASPs be concentrating on taking customers away from installed packaged software, instead of trying to steal them from each other?

Agressive or Frightened?
NetLedger's aggressive marketing was either a sign that Net-native ASPs have entered a new, highly competitive phase in their evolution, or else it was a desperate move to shore up flagging sales. I happened to be in San Francisco last week, and late on Friday, I asked Marc Benioff, CEO of Salesforce.com, what he thought the explanation was.

"They've got Salesforce.com envy," he told me. "They're grasping at straws."

Benioff took the opportunity to give me a rundown of NetLedger's financials — or rather, what he believes them to be (as private companies, neither NetLedger nor Benioff's Salesforce.com publish any independently audited financial statements). He put NetLedger's user base at around 6,000 and its revenue last year just $2 million. Needless to say, NetLedger says both figures are significant underestimates.

But even taking NetLedger's own figures of $4 million last year and $10 million this year, its revenues are still a far cry from Salesforce.com's claimed $25 million last year and upwards of $60 million this year. Benioff told me his company now has 73,000 users, boasts more than 5,000 customers in 107 countries worldwide, and is on track to surpass $100 million in revenues next calendar year. For a company that launched less than four years ago, these are impressive numbers. "We believe we're now bigger than all the other ASPs combined in the CRM space," he told me.

Envious? You Bet
At this point I should disclose that I'm not an entirely dispassionate observer in this matter. I am a shareholder and director of one of Salesforce.com's rivals. Headquartered in Malaysia, Entellium offers a suite of customizable online CRM applications. The company quietly opened its U.S. operations earlier this year.

So I can speak from direct experience in response to Benioff's assertion that his rivals are suffering from "Salesforce.com envy" ... Of course they are! Who in this business wouldn't aspire to that kind of growth profile, market credibility and brand recognition? Benioff and his team have pulled off a remarkable achievement — and it's precisely because of that success that the gloves are now off in the battle for sustained market share.

Thanks largely to the market acceptance that Salesforce.com has established, online CRM is now entering what business author Geoffrey Moore describes as the "tornado" phase of its market evolution. Moore's theory refers to technology products, so we can't be certain that it applies perfectly to techology-as-a-service offerings. But if it does hold true, then only two or three companies are in line to become the gorilla that dominates the online CRM market, and Saleforce.com is currently the out-and-out favorite.

If Benioff is right in his assertion — and I have to confess it rings true — that Salesforce.com already controls a 50 percent market share, then its position may already be secure. The one thing that could undermine its lead would be a perception that customers are drifting away to rivals such as UpShot, SalesNet, NetLedger and others, perhaps because its offering is insufficiently integrated, or because it's not customizable enough.

So last week's press release from NetLedger was indeed desperate in its urgency, but not because the company is weak, as Benioff would have us believe. NetLedger's management still believes it's not too late to snatch back the mantle of market leadership from Salesforce.com. Its all-in-one suite architecture certainly gives it a winning advantage with customers that look for a fully integrated solution, particularly while Web services-based integration alternatives remain immature. But there are plenty of other companies who are just as keen to weigh in on Salesforce.com's party.

The fact that ASPs are becoming so aggressively competitive against each other is a remarkable sign of confidence in an expanding market for online CRM. Last week, Craig Conway, CEO of PeopleSoft — one of those vendors of obsolete conventional packaged software — remarked that he'd never come across an ASP that made a profit. But there is a difference between the examples he cited.

PeopleSoft Doth Protest Too Much
Jonathan Lee, the founder of Corio, PeopleSoft's biggest ASP, warned as long ago as 1999 that unless vendors like PeopleSoft fundamentally rearchitected their software, the enterprise ASP model was destined to fail. Peoplesoft's eCenter ASP division is unprofitable because it is still attempting to deliver the vendor's single-tenant, client-server software in a model that, as Lee warned, it is fundamentally unsuited for.

In contrast, Salesforce.com developed its CRM software from the ground up to make sure it is optimized for delivery as a service. The only reason the company has not yet declared a profit is that, as a fast-growing startup, it has chosen to use its reserves of investment capital to sustain its rapid growth and reap bigger profits later.

The fact that Conway cannot see this difference is a classic case of terminal denial. Online software, delivered as a service, is not only here to stay, it has just begun its most furious phase of growth. This is a serious business now, with huge potential winnings at stake. Expect a lot more fur to fly before we're done.


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