A year ago I predicted that, right about this time, Salesforce.com would start to look a little shabby, a whole lot shabbier than it indeed looks at this time. It was part of a polemic I started when I called Salesforce.com the next Siebel, and I didn’t necessarily mean in a positive way. “Siebel 2.0” was meant to imply that Salesforce.com was running out of runway, and would soon crash to earth the way the once high-flying Siebel did in 2005, eventually succumbing to a takeover by Oracle and the confession by Tom Siebel that the core reasons I had been bearish on Siebel were essentially true: lack of deep back-end integration in the customer base that would help prevent customer defections, and lack of a flexible deployment model that would give customers a choice between on-demand and on-premise.
What has happened in the ensuing year is that Salesforce.com has indeed grown, not shrunk, and by most measures it’s very much the thriving business it was last year at this time. While there was little in the company’s latest quarter to indicate that its next “big thing”, Force.com, is generating any appreciable revenues or momentum, it’s hard to refute that the current business is doing very well.
Which leads me to a deserved update on my prognostication about Salesforce.com cum Siebel 2.0. I clearly got the timing all wrong, but the essence of what I said then remains true: Salesforce.com lacks the deep integration track record that would make it hard to swap out in the enterprise, and it lacks the next big market play that would give it legs beyond its current CRM on-demand focus. Neither AppExchange nor Force.com seem to be positioned to have a significant market impact, and strategic deals with Google aren’t going to shore up Salesforce.com enough to ward off the inevitable. (Of course, an acquisition by Google would change a lot, but I wouldn’t buy now if I were Google, Salesforce.com’s stock might be a little cheaper this time next year.)
Part of why I got the timing wrong was that two factors that I counted on to give Salesforce.com a run for its money have been delayed or otherwise haven’t yet had the market bounce I had expected: SAP’s Business ByDesign has taken a detour on the way to the market, and Microsoft’s CRM Online has only just arrived. I was counting on both of these players to have had more impact by now, and in the process I have to confess that my optimism about how fast they would start giving Salesforce.com some genuine competition was a little over the top.
Which is why I’m here today to revise my forecast of the decline of Salesforce.com: It’s going to take 18 months longer than I had originally thought. In other words, the wheels will start to come off by the end of 2009.
This schedule also takes into account a couple of other factors that weren’t in my original Siebel 2.0 post. The first is that other strong CRM on-demand players have emerged that I overlooked last year. Zoho is one in particular that I’m pretty bullish about. They have good functionality – as much as many Salesforce.com customers would ever use – and seriously competitive pricing. SugarCRM is another that looks interesting to me. Again, with so many CRM on-demand customers looking for functionality that is more at the commodity level of CRM than the strategic high-end, I believe that Salesforce.com’s first-to-market advantage will wither in part due to the availability of these much less expensive and still highly functional products.
The other factor that I can add to my original Siebel 2.0 post is that, in the ensuing year, Microsoft’s on-demand strategy has been augmented by its impressive platform-as-a-service strategy. Microsoft’s PaaS plans not only severely undercut Salesforce.com’s next attempt at a big revenue play, but they also highlight the relative paucity of what a CRM-based on-demand company can offer the PaaS market as compared to what a major enterprise software player like Microsoft can offer. The cumulative value of Microsoft’s full platform-as-a-service play, which, when fully baked, will include its Dynamics enterprise applications as well as development tools, database and systems software already familiar to literally millions of developers, puts Salesforce.com’s relatively puny plans in perspective.
And meanwhile, just to make sure Salesforce.com has its hands full in the PaaS market, Microsoft is already dabbling with a separate CRM PaaS play, called xRM, that has some serious uptake already, and not just for CRM applications. Customers have already built a staffing and recruitment application and a conservation management application, among a dozen or so other apps, using xRM.
While we’re on the subject of Microsoft, one of the reasons they’re being a little slow in the CRM on-demand market is they are seriously trying to figure out how to grow their CRM business without replicating Salesforce.com's spend-50 cents-to-get-a-dollar revenue model. And one of the other reasons they’ll do better than Salesforce.com once they get the ball rolling is that Microsoft is assuming, rightly I would add, that the ability to run Microsoft CRM on-line or on-premise will have a significant competitive appeal in the market.
So, whilst waiting for the wheels to come off, Salesforce.com seems to be riding the rails quite well. Which is of course the same trajectory that Siebel 1.0 followed until it hit the wall, and then it was downhill from there until the fire sale to Oracle in 2005. That’s the way the bubble bursts – quickly and often irrevocably. The trick is to predict when that end game is going to happen, and then act accordingly. I admit I had it wrong a year ago, but only with respect to the timing: the stars are aligned against Salesforce.com, it’s only a matter of time.