The on-demand service world heats up

Summary:Is hype endangering the health of on-demand computing? Patrick Grady of on-demand services provider Rearden Commerce (which I wrote about here) believes so, and lays much of the blame at the feet of salesforce.

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Is hype endangering the health of on-demand computing? Patrick Grady of on-demand services provider Rearden Commerce (which I wrote about here) believes so, and lays much of the blame at the feet of salesforce.com's Marc Benioff.  Grady acknowledges that salesforce.com has done a great job of evangelizing on-demand computing, and has delivered what he called a "wonderful application to the world of CRM," of which Rearden is a "very happy and avid salesforce.com customer." But Grady criticizes salesforce.com for getting "ahead of their skis" in an effort to expand the company's footprint and support its market capitalization. "I can tell you that no one will benefit from another set of missed expectations with enterprises. As an industry, we finally have the environment to deliver on our promises," Grady said. At the same time, Grady is touting his company as a leader in the  transition to on-demand, service-oriented platforms over the next five to ten years.

Benioff has expressed the goal of his company in this way: "Our vision is nothing less than the end of software. We want to become the world’s trusted standard for managing and sharing information." By the 'end of software' (which is a tiresome phrase at this point) Benioff means that in contrast to the 1990s client/server approach, applications are delivered as composite services over the Internet. Over time, salesforce.com hopes to evolve into a massive software ecosystem fueled by the company’s on-demand platform. 

Grady doesn't disagree with the notion of on-demand platforms evolving in the next few years that take on Microsoft, SAP, Google, and others who are vying to be one of the few core software infrastructure and API platforms for the next decade, delivering on-demand services from CRM and travel to vertical search and human resources management. In fact, Grady believes that his company has a good shot at becoming a de facto standard, on-demand platform in the next several years (more on that later in the posting), but he doesn't put salesforce.com in the same class.

Grady told me that he is not a marketer or eager to hype on-demand, but he seems comfortable taking salesforce.com down several notches in public. He paints salesforce.com as unable to expand its ecosystem and technology to become a general purpose platform for creating any type of enterprise-class, transaction-based service.    

"[Salesforce.com] is simply and fundamentally not equipped--by any measure--to become a general purpose platform for on-demand, and, as a result, will assuredly over-promise and under-deliver. Salesforce.com, as a high visibility 'poster child' for on-demand, will lead us all into an industry-wide PR disaster akin to the missed expectations of B2B, the wireless Internet (insert your favorite micro-bubble here) when they fail to deliver," Grady said.

Grady continued, "The reality of the salesforce.com stack is that it really is the marketing repackaging of the CRM app they started with five years ago.  In 2002, they announced sforce--the API, the configuration tools, and the infrastructure on which the salesforce.com CRM 'application' runs, but without making any significant architectural or programmatic changes to their software stack.  In 2004, they announced Customforce, splitting off the configuration tools from sforce by name, but not by function. Customforce basically packages custom fields, custom objects and tabs, and custom reports--hardly deep customization capability. Now in 2005, they have launched Multiforce with the claim that it will enable new, third-party applications to be deployed. Unfortunately, salesforce.com hasn't exposed the share utilities needed for third parties to distribute, market, and sell these applications. They have no licensing engine to meter usage and handle billing and payment for third-party applications, and they make it difficult for third-party developers to deploy any additional code or business logic that cannot be contained within the relatively simple configuration and database object extension capabilities that passes for an application framework for salesforce.com."

Grady and Mark Orttung, Rearden's vice president of products, believe that their company's software platform is superior to saleforce.com’s because it deals with more complex business schema.  "We think we are well-positioned because we have solved much harder problems. CRM is a form-oriented application, but doesn't necessarily extend to transactions and orchestration of services with third parties, which is required in a more generic platform for on-demand applications," Orttung said. "The complexity [of the problems EBS solves] ensures almost everything else is a subset. Doing temporary labor as the next service will be easy," Grady added.

Rearden is also hoping for a network effect to build its ecosystem. As Fortune 500 customers sign up, they have suppliers who would need to get on the Reardon platform, and participating service vendors could create their own Web services that could be added to the Rearden service registry. Grady also claimed that Reardon could become a generic operating system for on-demand applications in three years, but not necessarily the only platform.  "One company may emerge that becomes the standard for the de facto on-demand world," Grady said, "but it may shake out that there are four or five on-demand platforms."
 
I contacted salesforce.com for comment on Grady’s critique, but the company declined to respond due to its current quiet period, ordained by SEC regulations. Salesforce.com announces it quarterly financial results on May 18. It's fair to say that Rearden tackled the more difficult problem set in creating its SOA-based business services platform, but three years, or five or ten, is a long time. Salesforce.com has many, many  thousands more customers, partners, subscribers and developers than Rearden. And, neither salesforce.com nor Rearden have a licensing engine to meter usage and handle billing and payment for third-party applications.

As Rearden expands its range of services, however, it could be on every corporate desktop with its core service offerings (travel, office supplies, conferencing, temp labor, package shipping, manufacturing services, call centers etc.), and then extend to consumer services. Grady thinks that salesforce.com made a mistake by not going after human resource management. "Desktop real estate is valuable. Thirty-percent of users in our company use salesforce.com, but all of them use HR and Rearden. It's more seats, more transactions and higher switching costs," Grady said. So far, Rearden has raised $42 million in funding, and Grady said he was looking to fund another round to accelerate sales and marketing and to build out of an ecosystem of developers and partners.


It's premature to predict any future implosion of salesforce.com or the ascendancy of Rearden, but it will clearly be interesting to watch the dueling between the two companies and their savvy CEOs.  I am sure Benioff will have a response to Grady after the quiet period. Stay tuned to this blog...

Topics: Salesforce.com

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