A Leader in the Cloud Gains Rivals
By QUENTIN HARDY
New York Times
December 11, 2011
SAN FRANCISCO — For over a decade, Marc Benioff has had to listen to dismissals of the company he founded, Salesforce.com, as a marginal player in the business software industry.
But recently Salesforce has won the sincerest form of flattery known in tech: its competitors are spending billions of dollars to acquire firms that do the sort of thing it does, which is to offer business software as a kind of rental service using a cloud of computers inside the Internet.
Last Thursday, I.B.M. announced it would buy DemandTec, a cloud-based vendor of data analysis software for retailers, for $440 million. A week before that, SAP of Germany, one of the largest providers of traditional enterprise software, said it was paying $3.4 billion for SuccessFactors, which sells human resource software via the cloud. In October, the giant of traditional business software companies, Oracle, said it would acquire for about $1.5 billion RightNow Technologies, which uses cloud software for product research and customer service.
Mr. Benioff, the chief executive of Salesforce, is characteristically pleased with himself. “It’s great that Oracle and SAP are buying cloud companies,” he said, asking, “Do you think it will transform them?”
For Mr. Benioff, who co-founded Salesforce in 1999, the acquisitions are a vindication of his strategy. “Amazon Web Services is making over $1 billion in revenues with cloud software,” he said. “Google Apps is close to that. We’re on track for revenues of $3 billion in 2012. That is $5 billion, and that is what has them worried. Where are SAP, Microsoft, Oracle? Why haven’t they taken our customers?”
Much of the enterprise software industry, it’s true, has had a stagnant decade, and is looking for something new. Cloud is the new thing, but for many it means a big change in profits and how business is done.
Global spending on enterprise technology, forecast at $2.7 trillion for 2012, has been long dominated by corporate sales and use of personal computers tied to proprietary servers. The servers run software from SAP, Oracle and others that is sold to the companies as a licensed product, typically with large gross profit margins, then serviced for an even more profitable annual fee.
Cloud software is rented over the Internet at lower costs and margins. It is used by tablets and smartphones as well as PCs. The old giants, which arose by destroying the previous generation of mainframe and minicomputer companies, now face their own fight for relevance.
SAP, which in 2010 had $16.7 billion in revenue, plans to buy and acquire its way into the cloud business. “There is a lot of good marketing Benioff has done” for cloud computing, said Sanjay J. Poonen, president of global solutions for SAP. “Now that he has energized it, you’ll find bigger companies coming in.”
Besides the personnel software of SuccessFactors, he says, SAP will most likely offer cloud-based travel and expense management, accounting and collaboration software. In the old technology world, the German company is better known for its mastery of manufacturing and resource allocation software.
Oracle, with $35.6 billion in revenue, ousted Mr. Benioff from a planned keynote speech at its user conference in October amid mutual criticism by the two companies.
Lawrence J. Ellison, Oracle’s chief executive and a onetime mentor to Mr. Benioff, has compared Salesforce to a “roach motel” of products, and says Oracle’s cloud products will more easily work with software from other vendors. “Everyone’s got a cloud, we need a cloud,” Mr. Ellison said during the October conference. “Ours is a little different,” he added, “it supports full interoperability.”
The transition from one form of corporate software to another is hard, says John Wookey, who worked for both SAP and Oracle and recently joined Salesforce to run advanced products. “Ninety-nine percent of their business is still traditional,” he said. “The economics are different, but what is really different is the relationship with the consumer. We issue a new version of the product every four months. If the customer doesn’t like it, he stops paying.”
New versions of packaged software usually come out every few years, and it can be difficult to get out of a license when company data depends on it. “The hardest thing is to be successful again when you’ve been successful in the old world,” said Mr. Wookey.
Mr. Benioff said his response to the sudden attention paid to cloud companies is to keep moving ahead of the competition. Salesforce is building more business software that works like Facebook. Chatter, an internal communications product introduced in 2010, is intended to get people to share and collaborate more openly, aiming to create a faster-moving and less formal workplace.
Mr. Benioff takes this social stuff seriously. He put cameras in his own office and broadcasts meetings with his top executives to anyone in the company. “Our employees used to think this was an Illuminati meeting,” he said. Salesforce, he proclaimed, “might have been born in the cloud, but it was reborn social.”
So far companies seem more interested in looking hip to their customers than in changing the way they work. Salesforce has sold Chatter to Toyota as a way that employees can talk informally with each other and their customers, and customers can get messages from their cars for things like battery recharging. Burberry uses it as a means to ensure a consistent customer experience over different online devices.
This time Mr. Benioff does not have such a long lead. In May, VMware, which is majority owned by old-line data storage company EMC, bought a corporate social software business called Socialcast. I.B.M. has done internal work around applying Twitter-like feeds to corporate life. Mr. Poonen of SAP says SuccessFactors will provide a means to build a social network within its customers.
Mr. Benioff appears unworried. “I have a $10 billion vision for Salesforce,” he said. “It consists of customer success.”
nytimes.com |
