Examining Salesforce.com's ERP containment strategy

Salesforce.com launches its latest ecosystem extension with a bunch of connectors to a variety of applications.
Written by Larry Dignan, Contributor

Salesforce.com launches its latest ecosystem extension with a bunch of connectors to a variety of applications. Nick Carr reports that McKinsey & Co. will release a survey showing that 61 percent of CIOs at North American companies with sales over $1 billion are planning to adopt one or more software as a service (SaaS) application. And McKinsey isn't alone.  In a research note Nov. 16, Deutsche Bank projected that the SaaS market will account for half of the application software spend, or $30 billion, by 2013.
Meanwhile, Salesforce.com's Apex language launched early last month so 20,000 AppExchange developers can create multiple apps--including a few enterprise resource planning tools--on the Salesforce.com platform.

What does all of this add up to? A Cold War-style containment strategy. The game for Salesforce.com is relegating ERP software to plumbing that runs in the background. ERP works perfectly fine, but CIOs aren't hip to heavy investments big projects. Ultimately, the current ERP model collapses under its own weight.

How this plays out remains to be seen especially if the Microsofts and SAPs of the world go heavy into the multi-tenancy model that Salesforce.com advocates. But the containment metaphor is one to remember.

Containment talk emerged in a discussion at the CNET offices Nov. 22 with Adam Gross, vice president of developer marketing for Salesforce.com. For the record, Salesforce.com is sticking to its CRM guns, but isn't going to complain if its developers cook up some customizable financial, human resources or supply chain management apps. If Apex, which isn't launched yet, gains momentum it doesn't take a rocket scientist to see the potential threat to ERP vendors.
"CIOs are talking about containment," says Gross. "Leaving ERP in place surrounded by a layer of applications. It's a more agile way. It's increasingly looking like a containment strategy."
The strategy leaves Salesforce.com a wide swath of "disenfranchised apps" to fuel future growth. Disenfranchised apps are worth keeping, but don't merit additional investment. Gross says one reason Salesforce.com gained momentum was that CIOs saw an easy solution to replace CRM, one of the larger disenfranchised app categories. Gross has been making the project management rounds with technology executives going over what software is best suited for an on-demand approach.

Using the containment prism reveals a few enterprise application realities. For instance, is Oracle a software company or a support company? Clearly, it's the latter. Oracle is allowing customers to keep PeopleSoft, Siebel or JD Edwards apps for as long as they want--as long as Oracle collects the maintenance revenue. Fusion and its database aside, Oracle maintains a portfolio of disenfranchised apps.

What's the end game? If Salesforce.com becomes too much of a pain it would make a fine acquisition for Microsoft or even SAP. But let's see how this containment plan works out first.

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