Beagle Research Group

The On-Demand Cult!?

During Dreamforce there was a panel discussion for media and the financial and industry analysts. Some of salesforce.com’s senior executives were there and they included Steve Cakebread, CFO, Parker Harris, co-founder and EVP, and George Hu, VP of marketing as well as Marc Benioff CEO and founder.

The panel was one of those things that most companies do in one form or another at user conferences.  They are an important part of a company’s outreach to some constituencies that are very important in helping shape the company’s image.  Salesforce both taped and broadcasted the discussion and you can hear by clicking here.

Despite the fact that there were several senior executives present the invited guests really wanted to hear from Benioff and he was happy to answer their questions.  Dreamforce was a big moment for Benioff and his company as they were carefully trying to reposition themselves from being solely a CRM company to being something more akin to what Benioff called a multi-application and platform company.

For the purposes of this piece the most interesting part of the discussion begins around the 45 minute mark of the taping.  At that point an analyst asked a question about other delivery models that used single tenant architectures as opposed to the multi-tenant architecture pioneered by salesforce.com and others in the early years of this decade.

While the difference between the two might seem small there is a great chasm between them.  Single tenant effectively makes a big server operate like a bunch of little servers — each company subscribing to an application gets its own database and virtual machine.  In contrast, multi-tenant gives all users the same access but segregates data.  Multi-tenant is harder to do but the benefits include scalability and cost effectiveness and each of those is a major benefit.

Benioff’s answer to the single vs. multi question took two tracks.  First, he pointed out that single tenant had been tried before by companies like USI and Corio and “They didn’t do so well” in part because they couldn’t scale sufficiently, which put pressure on their pricing models.  The other argument is practical use.  If you look around at the major Web entities today, companies like Google, Yahoo, eBay and may others including salesforce.com, their architectures are remarkably similar, they are multi-tenant.

There’s no doubt that multi-tenancy is the heart of on-demand computing and in my humble opinion it has proven to be the solution that was needed by those envisioning a very different and more democratic form of computing many years ago.

I bring all this up to contrast what one vendor was saying to analysts like me.  I took a briefing with Callidus, a company with products in the compensation management market including sales performance management.  Callidus is a traditional software company that gained significant market share selling installable software.  Not wanting to miss the on-demand wave, Callidus recently came out with an on-demand solution that implements a single tenant architecture.  They’ve also begun talking about a hybrid approach that incorporates on-demand and traditional solutions to give customers more flexibility and choice. 

It’s a classic strategy by an incumbent to downplay the importance of a disruptive technology.  Clay Christensen documented it in the Innovator’s Dilemma and it is remarkable how consistent it is.  Inevitably it results in a retreat up market — a situation where the company loses market share at the low end while clinging to large late adopter customers.  In this case, one can only assume Callidus is feeling some heat from Centive and Xactly, two multi-tenant vendors gaining traction at the lower end of the market from Callidus and moving upstream.

Another thing incumbents do in this situation is to disparage the disruptor usually while trying to imitate the disruptor’s success.  So, for example, in a short essay penned by Robert Youngjohns, President and CEO, they even refer to on-demand as “a cult.”

“So what exactly is it,” he asks? “At best it's a marketing catch phrase. At worst it's a cynical attempt to separate eager VCs from their cash.”

Hmmm…I’ve heard VCs described in many ways in my career, but never as innocent, babes in the woods.  Try this, repeat after me — those poor, vulnerable VCs!  Just doesn’t work, does it?

Even in the face of this disparagement and attitude toward on-demand, Callidus still made the decision to attend Dreamforce and to have a booth.  Go figure.  Callidus has a good traditional product and large market share, two things that financial analysts love, but that’s not the point. 

At the panel I mentioned at the start, there were industry analysts and financial analysts.  After all these years the industry analysts are still ahead of their financial brethren when it comes to understanding on-demand, though the gap is narrowing.  The finance guys still need education about the revenue model and it is still a challenge for some of them to put a value on a software-as-a-service company.

The point is the future and I think Dreamforce gave us a pretty convincing view of what the future looks like.  It’s all about multi-tenant, on-demand, utility computing.

Why the platform is important

The software development tools market is littered with obsolete or dead-end products that attempted to make incremental improvements in the way enterprise software is created and maintained.  Although a few improvements succeeded spectacularly well, such as the relational database (RDBMS) and SQL, most approaches to streamlining the development of procedural code proved to be ineffective.  A long list of partial solutions starting with CASE tools and continuing to the present day with solutions like .Net all suffer from many of the same shortcomings — they are code-centric, they work on a limited number of hardware platforms, they are expensive to purchase and use (especially factoring in the cost of technical expertise) and they require a bewildering array of supporting infrastructure that is exposed to, and must be managed by, the user.  In a word, they are complex and their complexity is built into the fabric of these approaches making it impossible for users to factor complexity out. 

The antithesis of complexity is not simplicity but modularity.  Modularity enables users to sub-divide large tasks into smaller efforts that may be attacked by specialists and the standards provided by modularity give all who participate in the development process a blueprint for how to connect their work with the work of any other people with a similar mission, not matter if those people are down the hall or half way around the world.  Together modularity and standards set the stage for a new paradigm in application development, but by themselves, they are not enough.  There are modular, standards based approaches to code development on the market today but they have not delivered an application development paradigm that transcends the limitations of building code.

The evolution of the software development platform has provided the last necessary building block that users need to retire the old paradigm of procedural code development.  The platform gives purpose to modularity and standards and provides a management layer that shields the user from concerns about operating systems, databases, security, networking, resource provisioning and much more.  Just as today’s car drivers do not need to have a working knowledge of transmissions or fuel injection systems, today’s application developers no longer require detailed knowledge of their back-end infrastructures. 

Importantly, providing a reliable platform that shielded drivers from the complexity of cars resulted in enabling more people to drive which, in turn, created our modern mobile society.  Similarly, shielding those who need to make business applications from the complexity of computing systems will unleash a new round of creativity in business applications and result in a new level of sophistication and awareness in commerce that enables companies to be more intuitive and responsive to the world around them.

The Force.com, now at a computer near you...

“In addition, there will be less flashy but welcome enhancements to the service driven by user feedback.” I wrote that just last week about the upcoming winter release of salesforce.com which was announced this week at salesforce.com’s Dreamforce and it already sounds quaint.  That was as close as I managed to get in my predictions about what the company would announce at Dreamforce.  I said one other thing about salesforce.com being leak-proof last week and this turn of events confirms that.  At least no one can accuse me of copying someone’s homework.

As we now know, the company introduced yet another factor for its on-demand application development and deployment environment — the ability to custom create any UI a user wants using popular third party tools like Adobe Flex. Beyond that salesforce.com also seemed to reintroduce the ability to store and manipulate unstructured data like documents and the IdeaExchange. 

The last two were talked about a lot previously.  Unstructured data was announced with great fanfare when salesforce.com bought Koral and the IdeaExchange has been around a while too.  What was different, I guess, was the fact that these items are now tightly integrated and, more significantly, they round out what Marc Benioff says is salesforce.com’s stack. 

These final announcements enabled salesforce.com to re-brand and re-position itself from a SFA/CRM company into a multi-application-platform company.  With the new positioning comes a new name for the platform, Force.com, and to make sure the name sticks salesforce.com even managed to get George Lucas, legendary director of the Star Wars series, to give a keynote.

Personally, I am a little wary of the naming convention since force has a lot of connotations that are not necessarily salubrious.  Even Lucas’ characters had to wrestle with the fact that the force could be used for good and evil — heck that was the crux of the whole movie series.  Therefore, I fully expect competitors to find every possible pejorative nuance for that name and to exploit it as soon as humanly able.  At least we will be entertained.  Platform Wars anyone?

The naming convention aside, Force.com is pretty cool stuff.  The company’s done a good job of anticipating the needs that professional developers and business users would need in a tool like this. For example, VisualForce the UI announcement — a.k.a. User  Interface as a service, also exposed more of the application set’s internal code so that developers can more easily achieve desired effects in the interface even if they are not using a third party UI product.  All that makes it a lot easier to target small wireless devices, for example, like the iPhone for application generation.

The UI capabilities drew a lot of applause and you got the feeling that as much as users like the service, they were getting a little tired of the current interface.  With VisualForce the applications will no longer all look the same making it easier for partners to brand and differentiate their products.

The early feedback is impressive.  Japan Post, a big financial services company that grew out of the post office is an early customer.  Software developer HitachiSoft is using Force.com to develop an on-demand customer inquiry and compliance application in anticipation of Japan Post’s privatization later this year.   Salesforce.com says Japan Post has signed up for 45 thousand seats of the service making it easily the largest salesforce.com customer.  Citizens bank is another as is Kaiser-Permanente — a decent list for a new technology just getting going.

What’s most interesting to me is the fact that Japan Post is not interested in CRM per se; they’ve bought into the Force.com strictly for the programming and hosting capability and they plan to roll their own applications, thank you very much.

The show floor was also very busy.  Every year we see more and more interesting applications.  The first year was dominated by widget producers, companies with applets that improved small aspects of the SFA service primarily.  Subsequent years have had a rising number of standalone applications that integrate nicely with the overall service.  There is a robust community of marketing and sales effectiveness vendors in the AppExchange now and specialty applications for non-profit and government made a good showing as well. 

If you wanted to say the full blown age of utility computing is finally here I doubt many people would disagree with you.  On the other hand, that age has been dripping its way into our lives for many years already.  The latest bit of newly announced technology is simply the latest in a long line and I expect the drip will continue.  So, the Force.com is with us, let the bad jokes begin.

Clara's FaceBook mash up

Hats off to Clara Shih the salesforce.com product manager who built an interesting mashup between salesforce.com’s SFA product and FaceBook called FaceForce — really what else would you call it?  As an aside, the force or force.com suffix may be about to become the ketchup of computing — it goes with everything and though the idea of adding it anywhere might sound strange at first you really need to try it to get an appreciation.

At any rate, FaceForce is designed to give an SFA user some insight into a contact which the contact might reveal in a profile stored in FaceBook. As far as social networking goes, you can’t do much better than going right to the source.

The mashup has a lot of potential uses. For example, in addition to the sales scenario, I can think of at least one application called Studentforce (needs no description, does it? Pass the ketchup, please.) that will be a big hit with this. Imagine having all of your college scheduling, transcripts, email, financial aid, weekend plans, and all of your buds accessible from a single interface.

Clara did a great job putting FaceForce http://www.thefaceforce.com/ together.

Cheers!

Anticipating Dreamforce Announcements

I saw Marc Benioff in New York just after Labor Day.  He was in town for various business reasons and hosted a dinner for a group of customers, analysts and journalists.  It was a very interesting group though also informal — there were no speeches or presentations and no need to drag out the safe harbor statement.  Benioff spent a few minutes with each person and showed a very good understanding of each customer’s use of his software as though he must have taken part in the sale and implementation personally. 

What was interesting to me was that some of the customers were non-profits whose token use fees were not doing anything exciting for Salesforce.com’s bottom line.  For example, there was The Bronx Lab School principal Marc Sternberg whose high school used the Salesforce.com service to build a student tracking application that connected students, faculty and parents in what I can only describe as a learning web. If it takes a village to raise a child, the village schools of the future will probably communicate using a system like this one.

At the end of the night Benioff said good-bye to each and encouraged them to attend Dreamforce.  Most said they would be there and in fact the user group meeting that moved to San Francisco’s Mosconi Center just last year, is expected to set another record for attendance when it convenes in the middle of the month.

Dreamforce has become one of the must attend events on the IT calendar in the last few years.  Its importance ranks with SAP’s Sapphire and Oracle’s Open World as events that transcend being simply meetings of specific product users — these meetings have become the defining events in their spheres.  In Salesforce.com’s case, Dreamforce is the epicenter for pioneers and thought leaders in on-demand computing. 

As with any gathering of this magnitude, what the company announces will no doubt set at least some of the direction for the industry in the year ahead.  What Salesforce.com may announce is a closely guarded secret — the company is watertight when it comes to information leaks — but we can make some educated guesses based on previous announcements and stated directions.  Here are my thoughts.

CRM

Salesforce.com’s bread and butter is CRM and despite great progress in its platform services, CRM is where the company will earn its living in the year ahead and it needs to continue to exert leadership there.  I expect the effort will be focused on vertical markets.  The company has already made some inroads into financial services with an application for financial services advisors and I expect it will continue in that direction with additional modules such as retail banking or insurance.  Dreamforce might be the place to make such an announcement.  In addition, there will be less flashy but welcome enhancements to the service driven by user feedback. 

Other vertical announcements are certainly possible and the company has skunk-works projects ongoing with customers in a wide variety of fields so it’s hard to say where the next vertical might be. 

Platform

I think we will see the fulfillment of some promises made earlier this year relative to doing business on the AppExchange platform.  With the recent full release of the Apex programming language I think there will be small enhancements to the technology but the big news should be in the on-line store that the company began talking about almost a year ago. 

Briefly, Salesforce.com is offering multiple options for its developers that off-loads as much or as little of the responsibility for selling and servicing third party applications as the developer wishes.  So for example, a small group of developers that builds a product but does not wish to build a company to market, sell and service it, could assign all of those duties to Salesforce.com.  The net result would be that the company would receive a check on a monthly basis net of any agreed upon costs that Salesforce.com might take for providing those services.  Other developers might still choose to operate in a more traditional mode. 

A few years ago I suggested in a white paper that on-demand computing might result in this kind of two tiered business structure with a third party developer and a central entity I called a publisher and I think this developer/publisher model is coming into view. These are the details that I will be looking for at Dreamforce.

ERP

The other area that I see as ripe for a big announcement is in new partnerships especially in ERP. On several occasions Benioff and others including Parker Harris have stated their complete lack of interest in building their own back office/ERP applications but the need remains. 

I think it is becoming increasingly important for front office companies to have a stronger story to tell about front-to-back office integration.  Up to this point, it has been enough to offer good integration capabilities and to provide the customer with the freedom to implement whatever back office strategy it wanted but I think that era is ending.  Companies are looking for process integration not simply data integration which means more than typical integration provides and I think delivering pre-integrated process is going to have some appeal.

With the introduction of Workday by Dave Duffield (who will speak at Dreamforce) and his partners, we now have the promise of an integrated suite of on-demand back office applications and I think we could see Workday quickly become a standard, if only because there are so few on-demand back office suites yet.  If I was Salesforce.com I think I would want to get out front on this issue up to the point of announcing a relationship with Workday.

I should point out that I have no special knowledge of what Salesforce.com might announce and I could be wrong on all counts but these are certainly areas that might draw attention. 

We just have to wait till the keynote.

Dave Duffield inherits the earth

Dave Duffield, most famously the founder of PeopleSoft and now Workday, was giving a keynote presentation at the RightNow user conference in Colorado Springs when it hit me.  Duffield is about to become a king-maker in the on-demand market. 

Please forgive the apparent hyperbole and continue.

For the record, I don’t know Dave except by reputation — which is sterling — and until I saw him in Colorado last week I couldn’t have picked him out of a two man line up.  To be honest, what he said in the keynote is not what stirred up my thinking; it was more simply having the time to reflect on the fact of Workday’s existence that led me to my conclusions.  Here’s what’s been rattling around my brain. 

For quite a while another on-demand software CEO, Zach Nelson of NetSuite, has been telling anyone who would listen that the back office systems are the systems of record.  He’s right too.  The relevance?  Front office systems without back office integration will find a bottleneck in their futures that slows down their growth.  Siebel went that way and no one wants to follow.

Nelson is in what he believes to be the catbird seat because NetSuite incorporates front and back office technologies — in other words, what’s not to like?  I think he’s got a point, but there are many ways to skin the proverbial cat.  Salesforce.com decided to build out a platform that can embrace many partners’ applications to round out its core CRM offering, and that’s another example of how to get the job done. 

If NetSuite wants to be McDonalds, Salesforce.com is simply being Burger King telling its customers they can have it their way or ways.  Moreover, there are plenty of other companies vying for similar positioning — including SAP and Oracle.  The last two are having great difficulty with the on-demand business model and they may never make the transition.

Enter Duffield.  I think one of the reasons on-demand sprouted in the front office was that there are just too many moving parts in the back office which makes it a more conservative place.  On-demand needed to be proven in a more hospitable environment but now that it’s done there is undeniably an opening for on-demand ERP and all other things related to the back office.  Who would be better to bring ERP into on-demand than the guy who took ERP away from the green screens?

At the moment Dave is selling a message with roots in the earliest days of the on-demand era — lower costs, better adaptability, low risk and on and on.  While it might be true that ontogeny recapitulates phylogeny (the development of the individual replays in microcosm the development of the whole class) Duffield will need to move that message along pretty quickly or risk being overtaken. 

Being overtaken is not very likely.

To his credit Duffield is — correctly in my opinion — also selling the idea of integration and he is doing what is needed to make Workday capable of integrating with anything else that’s out there and that’s significant.  Before Workday, if you wanted to be a big time software company you had to build everything — front, back, up, down, you name it — but now there’s another option.  With good, capable and fast integration any company that can build a front office system can have a competent back office solution for customers who want it.  I think Workday could become a defacto standard in on-demand ERP PDQ simply by virtue of the fact that it is agnostic to front office differences.

The important point for front office companies — and RightNow gets this in spades — is that if you are a front office company, you don’t necessarily have to adhere to the sales-marketing-service and support model of CRM.  While RightNow might have all of those modules they concentrate their focus on service and support where they compete favorably.  It’s hard to say what other front and back office combinations might be waiting to be exploited but the fact of Workday’s existence makes many more combinations possible.

The ability to make novel combinations is what makes Workday potentially so important.  Where I think Workday can do a lot of good or disruption, depending on how you look at it, is with emerging companies whose solutions rely on front office data as well as data from the back office.  Many of those companies currently have an easier time integrating with front office solutions than legacy back office systems.

Workday still has a long road ahead before it is crowned the champ but the company has a lot of things going for it.  The thin ranks of the competition coupled with its missionary on-demand messaging and the legions of people who bought from Duffield before and who were pleased to be Peoplesoft customers are all on the positive side of the ledger.  Couple that with some aging applications that are owned by SAP and Oracle and you could expect a minor earthquake emanating from the East Bay.