Some say imitation is the highest form of flattery, but that’s only for those who forget that a good rebuttal – or attempted rebuttal – is quite flattering as well. Jason Wood, a fellow Enterprise Irregular and blogger, has done me the courtesy of a well-written blog that attempts to refute my previous post on Salesforce.com. So let me start by thanking Jason for the honor as I now set forth to defend my claims. I apologize if this blog requires a little homework, i.e. reading Jason’s blog first, as I have neither room nor time to excerpt his claims here as part of my refutation.
“Calling Siebel’s demise” in 2002 was harder than Jason claims. In fact, despite the financial numbers cited in his blog, which are irrefutable, Seibel was still considered unbeatable, undefeatable, and was largely untouchable to boot. There were really very few people – both in the financial community as well as the analyst community -- who believed Siebel was the house of cards that it proved to be.
Jason’s post-hoc analysis of their revenues is correct, but it is weighted heavily by the general economic climate at the time, which had dragged the entire sector down: no one in the industry was growing during that year, and many were shrinking even more. So a comparison of Siebel’s 2002 numbers and SFDC’s 2007 numbers is a little off the mark, being so heavily encumbered by the vastly different macro economic climates at the time.
In re Retort #1: Deep integration is more of an issue than open APIs, it’s about the strategic value of the implementation and the difficulty faced by a company wanting to replace Siebel with another product. It’s a leading indicator of the strategic value of a product at the customer site, and one that I contend is still the gold standard for judging how well a CRM product has done at a given customer – and, equally important, how much a vendor can count on retaining that customer going forward. Much has changed, as Jason states, including the revenue models of CRM companies. Siebel losing a customer meant losing a maintenance stream, but the high-priced license was already paid for and booked. Rip and replace is much more dangerous for an on-demand vendor, in that the value of the engagement must be amortized over a number of years, and not in a single, up front license fee.
In re Retort #2: I think Jason missed my point, and it’s possibly my fault because I wasn’t clear in my blog which CRM products I was referring to. The essence of the competitor threat to SFDC comes from the on demand products its competitors are bringing to market, Microsoft, SAP, and, to a lesser extent, Oracle. These on-demand products mimic the simplicity of SFDC while providing the out-of-the-box integration to a wider range of enterprise software, something SFDC can’t do. Hence, the competitors, admittedly still mostly in their nascent stages, pose a major threat by co-opting SFDC’s simplicity message while simultaneously trumping it in the integration category.
In re Retort #3: Yes, there are products on the market that can match that price: SAP and MSFT have both priced their on-demand products to compete with SFDC’s ASP.
Jason’s column then goes on an extended refutation of the similarities between Siebel and SFDC, much of which is true in the details, and I won’t try to comment on each of them. But I do have to comment on the issue of financial transparency: I don’t believe that the SaaS model gives more than a modicum of greater visibility than any other business model, and even less so since SFDC stopped reporting its subscriber numbers every quarter, opting for a more opaque bi-annual reporting structure that reduces transparency substantially. Sure, you can imagine that the pipeline is in the balance sheet somewhere, and there is probably some comfort in knowing that you’ll see trouble coming sooner than otherwise, but that fact is meaningless in terms of helping SFDC survive its precarious future.
In re Retort #4: There’s bravado, and then there’s Marc Benioff’s claims, which range from “no more software” (from the guy who then went out and created the Apex programming language) to predicting the demise of SAP, Oracle, and a host of other competitors. Marc’s problem, or more honestly stated, my problem with Marc, is that he has squandered an opportunity to be the smart honest guy in favor of forcing analysts to weigh heavily which comments to take seriously and which to toss in the BS bin. If he had set the bar more realistically about AppExchange, for example I’d be willing to cut him some slack. But he can’t, and I won’t, and in that we’ll just have to disagree.
The blog concludes with a list of factors, virtually all reflective of the current state of affairs at SFDC, that belie the longer view I’m trying to take in my blog. I would say that without a doubt SFDC is doing well by virtually all the measures Jason cites, but the wagons are circling: increased competition, increasing problems breaking into new markets like AppExchange, no visible increase in strategic position within his own customer base vis-à-vis deep integration, the removal of SaaS as a strategic differentiator, and a product strategy that gives most of the innovation initiative to partners instead of trying to grow new non-CRM functionality from within its own core.
So bear in mind I didn’t say SFDC’s business looked bad today – I may be a curmudgeon but I’m not delusional – but I still maintain that all the measures with which Jason concludes his blog will start to turn around soon. When? I’m not a short-seller, but I would say that 12 months from now would be a good time to revisit this exchange and see who was right. And bear in mind that I think there’s still plenty of time to turn this ship around – way before SFDC does go the way of Siebel.