November 19, 2009 © 2009 MGI RESEARCH, LLC
Playing to a record crowd, Salesforce.com CEO and uber-salesman Marc Benioff, kicked off Dreamforce 2009 yesterday morning at Moscone Convention center in San Francisco, CA. The new products (some shipping now, some to arrive in 2010) will do more to shore up its installed base and core markets (sales and support) than create massive new revenue opportunities for the company. The headline product – Chatter – is a validation of social applications (think Facebook and Twitter) in the enterprise. Salesforce’s announcements highlight the unique strengths and limitations of the on-demand SaaS (“Cloud”) software delivery model.
Salesforce is the most successful Cloud/SaaS software company with a healthy MGI-X score of 1,301. MGI scores are strong measures of management's effectiveness and the strength of the operating model. While Salesforce's MGI-X score is much improved over the past 18 months, it lags software industry leaders like Oracle considerably, and is below the best-in-class threshold score of 2,000.
Competitively, Salesforce has now signaled its strategic intent and capabilities – Oracle can rest easy, SAP slightly less so, Microsoft’s Sharepoint is clearly in CRM’s cross-hairs, and we believe Facebook and Twitter could be surprise winners from the launch of Chatter. Given that it is still not clear what the business models are for Facebook and Twitter, it is difficult to see how Chatter will drive revenues directly. Although Chatter could further entrench Salesforce within its existing market, and as such is arguably more of a defensive than an offensive move (which would also explain the pre-announcement of the product well before a firm ship date is set). More fundamentally, one cannot help but question the size of the market Salesforce has chosen to address, and its R&D motivation and capacity to capture marketshare.
In a marathon keynote presentation so long that people were streaming out well before the finish, CEO Benioff gave three major product announcements. One of them, Sales Cloud 2, drew the loudest applause and was clearly targeted at the Salesforce.com installed base of sales reps and sales operations management. Key highlights include quote generation functionality, tighter integration with Microsoft Outlook (“an incredible breakthrough for our R&D team”), Cloud Scheduler (a slick internet scheduling tool), and hosted content accessible on mobile devices. No functional or technical breakthroughs, but it was interesting to see Salesforce use internet and consumer products as the inspiration for their own developments (e.g., Evite as the model for Cloud Scheduler) – something corporate users are clamoring for, and a relative rarity amongst enterprise applications providers, even in 2009. Benioff also gave a demo of the forthcoming upgrade of the Salesforce GUI. It’s an improvement similar to what SAP’s mySAP was in the 1990s – good enough to placate the critics, but not a sea change in the user experience.
The Service Cloud 2 highlights center around the integration of the net, and social networking tools like Facebook and Twitter to help service center personnel connect with where customers really are – i.e., on the internet. The product incorporates concepts like crowd sourcing, and enabling direct messages to customers via Facebook and Twitter. Again, nothing earth shattering, but a welcome departure from traditional software applications, and an bright indication of where app functionality is going.
The big announcement, Chatter, is notable in several ways. First, it’s a clear statement that Salesforce is not going to attack the core territory of SAP and Oracle. Instead of going into more complex, transaction heavy functionality that is essential to an enterprise (e.g., financials, manufacturing, order management), Salesforce is signaling that it will go after lightweight, horizontal application functionality “at the edge”, with the hope that corporate buyers will increasingly view the heavyweight functionality offered by SAP and Oracle as commodity. Second, by coupling the Chatter functionality with content, groups, and APIs, Chatter is targeted at the huge installed base of Microsoft Sharepoint users. Legacy knowledge management and workgroup apps like Lotus Notes and Groupwise, among many others, will struggle to compete against the appeal of Chatter. Third, Chatter validates the enterprise use of social applications like Facebook and Twitter, and it puts a price tag on the functionality. Fourth, Chatter arms the Salesforce.com sales team with a product that can be sold to every user in the enterprise – not just sales, marketing, and support users. This opens a massive sales opportunity, and raises some key issues. Will users actually pay for this type of functionality? Is there any ROI or TCO advantages to this type of product – or is it merely a “nice to have”, or even a “curious to have”. Informal polling data what individuals would pay for Facebook or Twitter indicates that a paid license model for either of them would be a risky bet.
Competitively, here are the conclusions from Day One of Dreamforce.
SAP is not at risk of losing key ground to Salesforce. Certainly Salesforce will continue to make inroads vs SAP in sales and marketing driven deals. In fact it’s hard to see SAP win a sales CRM deal anywhere outside of its hardcore installed base. There is little to no risk of CRM going after SAP’s core enterprise business. SAP would do its users a great service by emulating Salesforce’s consumer internet-oriented inputs to R&D.
Oracle -- the lack of any breakthrough product or entry into a new market is neutral news for Oracle. Salesforce and Oracle will continue to battle in CRM deals, with Salesforce winning more in the midmarket, where Oracle is much less competitive, and the two going head to head in the large accounts. Salesforce solidified its position, but is far from delivering a knock-out blow to Oracle in CRM, marketing, and service automation. Microsoft will face increased competition from Salesforce in the Sharepoint market – this is a space that Microsoft has produced considerable success in the past five years, and in which MSFT has become the de facto corporate standard. While one could assume that Chatter will block Facebook, Twitter, and Linked-In from the enterprise, the more likely outcome is that Chatter could slow the corporate use of those products until Salesforce actually delivers Chatter sometime in 2H 2010. The MGI take is that FB and Twitter will benefit from Salesforce’s endorsement of the space, and the real losers are the myriad start-ups in Silicon Valley attempting to deliver “enterprise ready” social collaboration tools like FB and Twitter.
Looking ahead to the 2010 and beyond for Salesforce, it’s not clear that they have: a) the R&D firepower to extend much beyond where they are; b) enough product to sell that is a “must-have” vs “nice to have”, especially next year when budgets may continue to be tight; and c) that they are targeting markets that can help them double their revenues over the next five years. Knowledge management, collaboration, and social applications are hot and sexy today, but currently and historically have proven to be relatively meager markets. With improvements to its core sales application, Salesforce may reduce the churn in its subscriber base, though there will always be some churn. The services and support market is largely untapped, and Salesforce should be competitive against the entrenched legacy players. Will Chatter evolve into the most profitable talk of the town, or simply be a sweet nothing on the Salesforce income statement? Our bet would be the latter.