SaaS battlegrounds: Salesforce v Zoho

When Salesforce.com CEO Marc Benioff put on his jocular performance for the analysts and press at Dreamforce yesterday, I'm sure he didn't expect little ol' Zoho to come bite him in the pants.
Written by Dennis Howlett, Contributor

When Salesforce.com CEO Marc Benioff put on his jocular performance for the analysts and press at Dreamforce yesterday, I'm sure he didn't expect little ol' Zoho to come bite him in the pants. That's exactly what's happened.

According to Venture Beat's Anthony Ha:

Salesforce.com’s strategy can be boiled down to one word, according to chief executive Marc Benioff — love. Of course, Benioff was being a little tongue-in-cheek...

As with its other offerings, Microsoft’s new cloud-computing application platform, Windows Azure, is all about tying people into Microsoft products and services, Benioff said. Salesforce, on the other hand, is much more about being open and cooperative, both in its customer relationship management (CRM) services, and in Force.com, its platform for business applications. Salesforce is interested in connecting multiple clouds, platforms and devices — witness today’s announcement that Force.com will integrate with the Facebook platform and Amazon Web Services, or Salesforce’s integration of Google Apps earlier this year.

Comparing Microsoft and Salesforce, Benioff said: “They hate everybody and we love everybody, and that’s pretty much the difference. We even love Microsoft. … This is our core strategy, love.”

Rough translation: we're good guys (ergo trust me) and Microsoft are bad guys (ergo don't trust them. Sounds sweet until you understand the game of hardball Benioff plays when faced with anything he sees as a competitive threat. Benioff's message certainly raised hackles with Sridhar Vembu, Zoho's CEO. In a blog post today, Vembu recounts how Benioff tried to strong arm Zoho into giving up on its CRM development:

Benioff told me he could not permit us to play on the AppExchange as things stood, but he would be happy to acquire us. We had several rounds of meetings on this,  finally I told him I really don’t see any cultural compatibility between the companies. He changed tack and repeatedly tried to get us to discontinue Zoho CRM, in return we would get to play on AppExchange. I was furious because both Benioff and his team clearly knew we had a CRM offering going into this engagement, and if they had this as a pre-condition for us to integrate into AppExchange, we would never have put in the resources we did.

Since then, Salesforce has repeatedly tried to block customers from migrating to Zoho CRM, by telling them (falsely) that they cannot take their data out of Salesforce until their contract duration is over. We have emails from customers recounting this.

This is not a new story but one I have heard Vembu recall on a number of occasions. Vembu then goes on to assert that while Google represents a potentially much bigger competitive threat, Zoho has experienced no difficulty in getting engineering assistance from Google. What's going on here?

Readers need to understand that Benioff comes from Oracle, a company famed for playing hardball as epitomized by its CEO, Larry Ellison. Oracle has a knack of turning out hard nosed, often successful Silicon Valley execs that are super competitive. Benioff is another in a long line of execs that include Tom Siebel (Siebel Systems), Craig Conway (PeopleSoft) and Zach Nelson (NetSuite.)

These companies understand one thing - winning is all about lock in and with the Force.com, Salesforce.com is no different any of its predecessors. Benioff as near admitted as much when he said to Ha that:

When an audience member pressed Benioff on his touted openness, Benioff emphasized that he’s talking about cooperation with other companies, not open source, per se. He also acknowledged that Force.com has its closed aspects, namely the fact that if you build an application on Force.com, you can connect it to other platforms, but you can’t fully move it to another cloud.

Ergo once you're on Salesforce.com's cloud for business critical applications, you are in no different a position than if your code was tied to SAP's ABAP. You can't move without significant retooling. This runs contrary to many people's expectations about what 'cloud computing' is all about; openness, flexibility and the ability to on and off-ramp as requirements demand. That may not apply so easily for transaction based systems and that is what Salesforce.com is counting upon.

Is Zoho alone? Is it a case of the yappy dog going after the farmyard pitbull because it isn't getting its share of scraps? Hardly. If GE successfully completes its evaluation of Zoho Office, then Zoho will have scored one of the biggest, if not THE biggest saas applications deals to date. Something that must stick in Benioff's throat but which ironically will have been won from Google.

On the Silicon Valley grapevine, I have heard of other cases where Benioff has tried to strong arm technology vendors, only to be sent away with his tail between his legs. Of course in the Valley, there is always an element of hubris, but every now and again, these stories bubble up.

As Salesforce.com gets bigger and it attracts more developers to its Force.com platform, we can expect more yapping and reminders about however much Benioff may declare his love, he is really acting like every other enterprise vendor that has gone before: locking you in while smiling benignly. In the long term, that also means higher cost as the captor squeezes as much out of its prisoners as possible.

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