Salesforce

  • August 15, 2018
  • I was on vacation when the news hit that Keith Block would become co-CEO of Salesforce with Marc Benioff and that Parker Harris would join the board of directors. I’ve already written about Block and for some reason always assumed that Harris was already a board member so the news came as a surprise and a gratifying one at that.

    Parker Harris is a real Renaissance man with a background in the humanities (BA, English Literature, Middlebury College) as well as the chops needed to develop multi-tenant computing way back when Salesforce was emerging. That’s an important distinction and you could dwell on it for a bit.

    It’s my observation that at the beginning of a disruptive innovation there are no experts in a field just talented “amateurs” to fill the need. Go as far back as you like and you see a stable pattern. Bill Gates dropped out of Harvard as did Mark Zuckerberg. Steve Jobs did just a year at Reed College. Wilbur and Orville were bicycle mechanics and spent a whopping $2k from their business on their experiments to invent heavier than air flying machines. Henry Ford? He was largely self-taught learning about steam engines on the job while taking a few bookkeeping courses. Finally, there’s Edison. This self-educated inventor and business man might be the greatest of all time with 1093 patents to his name. He took a few courses.

    If you’re interested in learning more about how invention and discovery favor the talented amateurs, I suggest “The Structure of Scientific Revolutions” by Thomas Kuhn. He’ll take you even further back throughout history to see even more of the pattern.

    But for now, congrats to Parker Harris, one of the great ones.

     

     

    Published: 2 months ago


    The end of the second quarter ended the first wave of vendor customer events. Still to come are Salesforce Dreamforce and Oracle OpenWorld—and others—in the fall but mercifully, we have the summer to digest all the information absorbed this spring and re-synch with our native time zones. Here are some things I learned during show season but as you read this know that no person goes to all the events and other people like Paul Greenberg, Esteban Kolsky, and Brent Leary are well worth reading on the subject. So are Jon Reed and Phil Wainwright.

    CRM is big, big, big. Still.

    CRM doesn’t appear to be slowing down. As an industry it’s rated at about $35 billion in revenues up three-fold over where it was at the beginning of the century when I was a tenderfoot. One reason for the growth is the constant diversification led in no small part by Salesforce’s innovative culture. Big vendors like SAP have rededicated to CRM and I wish them well though I have a nagging feeling that’s an uphill path. Still many enterprise vendors seem to have entered CRM as a defensive move to secure their legacy customers. That’s not a recipe for sustained excellence. But what do I know? I’m just an analyst.

    Salesforce isn’t going to bail out your business plan

    Some vendors got into the market on Salesforce’s coattails without realizing they still have to perform. You can be in the AppExchange and flounder if you’re waiting for a Salesforce sales rep to call you up with a deal. Also, Salesforce isn’t likely to buy your business. They might buy a lot of companies but there are even more to choose from.

    The next wave might involve formation of an Information utility

    I’d say we’re in the latter half of this wave, a time of automation, consolidation, efficiency, and effectiveness, in other words commoditization is happening. That’s what the digital disruption is about in my humble opinion. Right around the corner is formation of an information utility which is already ongoing and gaining altitude. No one calls it that but major vendors are building cloud data centers galore—Microsoft even sank one off the coast of Denmark as an experiment in cooling to save money. At any rate the big guys need to get together to set utility standards for APIs, metadata, and interoperability in much the same fashion others did about 50 years ago to breathe life into the relational database and SQL. This will necessarily add to commoditization but it will also open new areas for competition.

    Business models proliferate and get complex. Being SaaS is now table stakes.

    We’ve begun winding down the on-premise business model, though it will likely be with us on the edges for most of the next century. But for practical, enterprise computing the cloud and subscriptions have come into their own. The folks at Zuora are still evaluating the subscription side of the model and its offshoots and will likely have interesting things to tell us down the road. Clearly, subscriptions haven’t taken over the world yet but we’re all trained subscribers at this point and that fact drives CRM. I look for more ideas surfacing to articulate a new model of labor as a service. Whatever we call it the more we engage in the gig economy the more we find we need an organizing principle and I think it will borrow heavily from XaaS.

    Social media has jumped the shark

    The Facebook revelations of the last quarter from Cambridge Analytica to feeding data to hardware makers put Facebook under a cloud and cause some people to re-evaluate their allegiances. Can social survive or has it been exposed as a show, like “Seinfeld,” about nothing? My instinct is that social has to morph into a data utility sitting on top of the information utility and it has to become regulated to prevent the worst abuses else it falls into irrelevance. Translation: billions of users is not enough, they have to be the right users.

    There’s a new book by Jaron Lanier, “Ten Arguments for Deleting Your Social Media Accounts Right Now.” It’s an industry insider calling in an airstrike on his own position. We have to destroy this village in order to save it. But it softens mid-way into something more like we can’t use social until it gets fixed. Fair enough. But most of the social concepts complained about in the book are not typically what CRM vendors engage in. So there’s hope. But we still need to fix social. Pronto.

    CRM is maturing

    This means there are few, if any, niches left for upstarts with a better mousetrap in any of the traditional stovepipes. Those bases are covered. Nevertheless, new opportunities open all the time. Some are crazy and scary amalgams of AI, machine learning, selling and marketing with a little Tai Chi added for good measure. They won’t all survive but that’s not news. The big players are only getting bigger. Salesforce is well beyond the $10 billion mark and Oracle grows its cloud presence every quarter. The majors have so much money to direct at R&D and marketing that a new company can’t expect to go head to head.

    The middle office might be a thing

    I learned this at Apttus’ event. Though I think the name needs work the idea is sound. It lines up with the coming information utility. More importantly it acknowledges the reality that back office data drives some front office processes and vice versa, too. The middle office comes on strong in the IoT and semi-automated world of eCommerce which is only growing.

    Chicago is a thing

    Chicago used to be the city tech users flocked to for conferences but then San Francisco cornered the market. The tide is turning though. Chicago has a few months of spectacular weather, but year-round it has great food, friendly people, a can-do spirit, and art and architectural gems. I went to two conferences at the McCormick Center this quarter. They were well attended and the McCormick is plush and spacious. Give it to Chicago, they know how to do architecture. So I look for more conferences to migrate to the middle of the country, to places like Chicago, Dallas, and New Orleans. It’s a shorter flight and these cities have more real-life amenities than say, Las Vegas. Don’t look for Dreamforce or OpenWorld to move but each company is now using Chicago for smaller events.

    Last word

    Despite the money spent on shows, some CRM vendors seem to be pulling back on marketing, which is a mistake. The vendors I see who are doing well have a balance of shows, automated outreach, and in your face marketing for good reason. Others rely too much on top of funnel marketing and don’t get the conversions they want. People buy from people and there are too many warm leads for salespeople to chase right now. They can’t spend their time upgrading the leads because their primary job is closing deals. So more live marketing might be in order; chatbots are fine but talking to real marketing people, doing webinars etc. haven’t gone out of fashion.

     

     

     

    Published: 3 months ago


    Salesforce’s just announced Q1 FY 2019 results beating analyst estimates and causing the stock to rise 3.9 percent. The company had been advising investors that it expected to grow to $12 billion and in the fiscal year and the Q1 results of $3.01 billion keep it on track. That’s a 25 percent increase year-over-year with first quarter operating cashflow of $1.47 billion up 19 percent.

    The company adopted an alphabet soup of new regulations in the quarter including ASC 606 which deals with how subscription companies recognize revenue. From the press release:

    Unearned revenue, representing ASC 606 deferred revenue less the cumulative timing differences of recognized revenue from ASC 606 adoption, on the balance sheet as of April 30, 2018 was $6.20 billion, an increase of 25% year-over-year, and 23% in constant currency.

    That’s an important measure, before ASC 606 subscription companies had various approaches to recognizing booked revenues that had been held in reserve to pay future subscription fees. This points out the power of the subscription model. In contrast to conventional revenues that start at zero each fiscal year, subscription customers commit to purchases well into the future making it easier for a company to hit its growth targets.

    The rise of subscriptions had caused some inconsistencies in revenue booking across the industry and ASC 606 and other regulations will help regularize that process. Look for other companies like Oracle to go through a similar adjustment as their cloud strategy takes hold.

    Published: 5 months ago


     

    Denis Pombriant, managing principal, Beagle Research Group, LLC

    Salesforce’s embrace of Rimini Street’s third-party support services is a significant departure that has transformed the support vendor from competitor to partner—at least with Salesforce. It might also offer insight into changing cloud business models. At least it helps to make sense of recent litigation involving Rimini and Oracle.

    Rimini Street began life as a support vendor for enterprises running Oracle and SAP software in the traditional on-premise model. In this incarnation Rimini quickly and inevitably became a direct competitor taking support revenue from enterprise vendors. Competing for support revenue is legitimate provided the third-party vendor conducts itself lawfully, respecting patents and copyrights to intellectual property concerning the systems being supported. The third-party also has to grapple with providing patches and updates that an OEM can provide.

    Typically, enterprise software vendors charge a flat percentage of the licensed software fee for support services. Regardless of the terms of the deal a business strikes with a vendor over the software purchase, the services fee is almost always calculated on the list price; so with fees around 20 percent an enterprise can end up re-buying the product every five years or so.

    To be fair, there’s a significant cost built into providing service and support which includes on-going R&D, patches, updates, fixes, and bulletins, as well as live support based on a service level agreement of SLA. Customers are always trying to get a better deal and vendors need to hold the line on pricing to cover their costs and generate a profit, which is the point after all.

    Third parties have a lower bar—since they don’t write the original software or upgrades their overhead is lower. But that’s the point. They don’t own the source code and so they can’t patch it, a key reason for buying support in the first place.

    Rimini has announced what we can call “patches to patching” which it named holistic and virtual patching. But each of these ideas works several levels of abstraction above the source code never actually patching it. The result is that systems are still in jeopardy. So the basic low cost inducement of third-party support vendors is in some cases, specious. They charge less but they also deliver less and the difference can leave an enterprise vulnerable to hacking, and down stream effects like brand erosion and lost trust and lost revenue.

    Oracle has had a long simmering law suit against Rimini, which exhausted the appeals process recently. In the verdict, Rimini was shown to have “borrowed” materials from Oracle by simply downloading them from support sites.

    After Rimini lost on appeal, it issued a strange statement that was carried in the UK Register and elsewhere saying,

    “The Court of Appeals, while affirming the jury’s finding of ‘innocent’ copyright infringement for processes that Rimini Street claims are no longer in use since at least July 2014, stated that Rimini Street‘ provided third – party support for Oracle’s enterprise software, in lawful competition with Oracle’s direct maintenance services,”

    Which roughly translates as, we did nothing wrong and we won’t do it again.

    It’s quite hard to provide in-depth support if you don’t have inside knowledge of how systems work and don’t have the source code which you need to make a patch. Oracle’s case revolved around Rimini Street’s appropriation of copyrighted support materials produced by Oracle. Specifically, the enterprise vendor accused Rimini of violating up to 93 copyrights on its support and materials and the judgements, including appeals, went against Rimini though some monetary awards were later reduced.

    A new model

    Since the rulings and fines, Rimini has been seeking a better way to do business and it may have found it with Salesforce. If so, it could be a new model for other cloud vendors as well.

    Rimini provides 24/7/365 support for selected Salesforce applications, which now include Salesforce Sales Cloud and Service Cloud, with 15 minute response time. Salesforce and other cloud vendors offer services for their products too but generally customers have to pay more for the advanced features that Rimini provides standard. So the competition is between Rimini and, in this case, Salesforce’s advanced support services, a choice that customers are free to make.  Judging by the announcement of the services, Salesforce is in favor of the arrangement and views Rimini as a partner.

    Here’s why. Rimini Street CEO Seth Ravin recently told ZDNet,

    “The SaaS world is different in that maintenance is included in licenses and mostly bare bones.”

    Simply put, there’s more room in a cloud situation for Rimini to add value.

    Let’s separate call center service from updates and patches. Only Salesforce patches its products and it does so whenever needed as well as with three annual updates. So, the thorny issue of third-party patching is off the table in the Salesforce model. No patching requirement makes it much less likely that Rimini or anyone else will need to do the things that Rimini was found guilty of in the Oracle case.

    With a cloud business model a vendor builds support costs into the monthly fee and that includes further product development and enhancement as well as some amount of live support but the cloud vendor gets paid no matter what. There’s no haggling over service fees—either the customer buys what the OEM has or goes to a third-party and pays there. As a result it’s far easier for Rimini to be seen as a partner by a cloud vendor, than as a competitor.

    So the difference in how support is delivered and paid for may turn out to be a significant additional inducement to legacy customers contemplating a move to the cloud. In any event, it is reasonable to conclude that the on-premise version of service and support may be going away.

    My take

    At some point companies like Oracle might begin to view third-party support service providers more as partners than competitors just as Salesforce does. But the change won’t be quick or uniform. Oracle’s bevy of cloud products still have numerous configurations that enable customers to straddle cloud and on-premise positions with different support modalities. For instance, Oracle’s BYOL, Bring Your Own License, program enables customers to move an on-premise app to Oracle’s infrastructure cloud (IaaS). So, the application retains its legacy character, and presumably its support liability, even though it runs in the cloud.

    Deploying a modern, cloud version of the app might remove the annual support bill but at the cost of an incremental SaaS fee by the month or contract year.

    Few enterprises will decide about moving to the cloud over the cost of application support alone. The move involves a complex matrix of costs for hardware and software—including everything in the stack. There are also considerations for labor. Given Oracle’s new push into automated products in database, security, integration and other areas we can expect cost savings for some premise-based systems but that remains to be seen.

    Oracle is making its customers’ move to the cloud as cost effective as it knows how and it’s likely that early movers will get the best deals. Something else to consider for the vast majority of Oracle’s customer base with its feet planted firmly on the ground.

     

    Published: 5 months ago


    For some time now, it’s been my impression of the CRM market that all, or at least most, of the good ideas have been taken. It’s been a long time since we saw a new systemic solution that approaches front office business. It’s even been a long time since we saw a major innovation at the department level.

    CRM itself was a systemic innovation in the last decade of the last century. Cloud-based CRM was the innovation of the new millennium and since then, marketing automation would count as a departmental innovation. You can also look at analytics as a systemic innovation because although it straddles departments, it has become a department itself.

    This is not a bad thing, just the opposite. As CRM has been built-out it has opened new market niches which has maximized the number of solutions and, more importantly, it has made all of them affordable to just about any business. As I’ve said before, cloud computing is the commoditization of IT. It has made information processing both simple for a lay person to use and so affordable that all those who want it can have it.

    CRM is far from done as an approach to business and as an economic driver, but we must acknowledge we’re at a turning point. Behind the scenes the major vendors, among whom are Salesforce, Oracle, and Microsoft, have gone a long way toward consolidating the industry by platform and from here that will be the dividing line.

    So far this spring I’ve attended two conferences that illustrate my point, SuiteWorld and Financial Force’s analyst day. Each company has financials and ERP solutions that address the needs of small and medium and in some cases larger businesses. Each is deployed on a specific platform: NetSuite on its own which it announced is moving aggressively toward the Oracle Cloud Infrastructure, and Salesforce whose solution encompasses development platform and infrastructure.

    While it’s quite possible that many customers will continue using hybrid solutions such as NetSuite for back office operations and Salesforce in the front office, it’s already easy to see that situation morphing. Oracle has for many years used the logic of running a suite of related software over an integrated solution made up of best of breed apps. It is continuing this logical progression with NetSuite both on its own and as a member of the Oracle family.

    Salesforce is using a derivative of this logic too. While Salesforce is and will likely always be a front office company, its powerful platform and AppExchange gives partners the ability to build completely compatible applications that help customers achieve suite status. After all, that’s the logic of having a platform to start with. A platform supplies a consistent set of programming tools, interfaces, objects, data structures and more—standards—so that apps built on it can interoperate. It’s the same logic as building a hardware bus so that manufacturers can build to common standards. It’s popular because it works.

    So, the play as I see it for any software companies not named Oracle, Salesforce or a small group of others, is to pick a platform, become intimately involved with it, and pursue the surrounding ecosystem as your market.

    Some vendors have begun working with two or more platforms and that’s fine if they have the resources, but I see that as a short-term gambit designed to see which platform vendor is the best partner.

    All of this is vitally important. As I mentioned last time, the meme making the rounds is that it’s easier to start than grow a company, especially in tech. I can see this and deciding on a platform and an ecosystem to work in is one of those things that can help reduce overhead and enable a business to better focus on the things that really matter for growth, like markets and customers.

    My two bits

    CRM has been a wild ride for two decades and the ride continues. At this stage it’s important not to get sucked in to the latest discussions of digital disruption, IoT, analytics or anything else that looks bright and shiny. They’re all important as secondary considerations but I think the most important thing, and in some ways the least glamorous, to concentrate on is what vendor and which platform you want to work with over the next decade and beyond.

    Markets converge. Fifteen years ago, few vendors had complete CRM suites and now they all do. Today we’re looking at far more complex and sophisticated front office applications as vendors take on vertical market apps. These apps combine back office data, front office processes, intelligence and machine learning and highly specialized subsystems for everything from manufacturing to healthcare. In this new environment who has time for platform incompatibilities?

     

    Published: 6 months ago