Relentless might not be the first word you associate with Salesforce.com but in retrospect, it fits very well. Other words might include logical and well planned. President and Vice Chairman Keith Block came to Boston this week with a troupe of “forcers” to deliver the company’s post Dreamforce message to an appreciative audience.
Block’s message was augmented by his announcement of new offices at 500 Boylston Street housing 150 employees with ambition to double. Also, in a surprising move, Block announced the company’s intent to overtake SAP as the dominant enterprise software provider and number three overall global software company behind Microsoft and Oracle.
The world is a shark tank these days and Woody Allen’s adage that if you stop swimming you die is hard wired. But to hear such naked ambition was both a surprise and a statement of received wisdom. I have been discussing the company’s eventual ascension into the Fortune 500, for example, so the idea of this kind of rise is ambient. But saying it out loud tempts the childhood notion that if such aspirations are vocalized they might never come to pass.
But that’s all so much childish nonsense. Salesforce’s relentlessness well precedes this latest announcement and part of Block’s presentation retraced the company’s journey and accomplishments along the way, which includes Gartner Magic Quadrant leadership for Sales Cloud and Service Cloud as well as Platform. But it goes much deeper. There are various Forbes, Fortune, and other magazine coronations and accolades from MSNBC’s Jim Kramer for being consistently one of the best companies to work for, one of the fastest growing, and one of the most innovative companies on the planet. And magazine publishers apparently can’t get enough of Mr. Salesforce, Marc Benioff who’s been named one of the most respected CEOs and philanthropists.
Salesforce is, one could argue, the whole package, and not by accident — its relentless ambition is most visible in retrospect. So where to next? Block also used the occasion to announce the company’s intent to push vertical solutions into six broad industry categories including financial services/insurance, healthcare/life sciences, retail/consumer products, communications/media, public sector and automotive/manufacturing. It is a logical thing to do and emulates the bigger companies that Salesforce contends with, though at this level of granularity you might also say that, the designations are overly broad. However, you have to start somewhere.
For instance, manufacturing and automotive strongly suggest discrete manufacturing but this says nothing about process. Or does it? Retail and consumer beg the question of conventional vs. subscriptions, and healthcare and life sciences is a dog’s breakfast of care delivery, insurance, medical device manufacturing and more. It is also a walled garden maintained by thirty-plus year old mini-computer software. I could go on but all of this suggests not simply antagonists but real opportunity.
There isn’t a company under the sun that cannot benefit from a cloud and platform-based modernization of its sagging software from the last century. This is just the sort of thing that an ambitious company like Salesforce can turn its relentless drive towards.
To be sure there is plenty of competition. Oracle, Microsoft, and SAP all want to play in this new era as well and they are as relentless and ambitious as Salesforce. But Salesforce seems to uniquely understand that it lives in a multi-polar world, one where the winner take all approach of the last few decades in software is being replaced by cooperation and best of breed solutions.
This is also an era of diminished focus on transactions and increasing importance of process, which drives the need for platform. To one degree or another the others may offer cloud-based products and services but they are still wedded to a business model that Salesforce and its kin have made obsolete.
One of the more interesting aspects of CRM Evolution, which was held in New York last week, is how many emerging companies attended and appear to be doing well. The big guys were there too either with booths or through attendance by senior people. You can get a false sense of the marketplace if you only attend Salesforce.com’s Dreamforce, Microsoft Convergence, SAP Sapphire, or Oracle OpenWorld.
Though they are all excellent, at those shows a single vendor dominates and ecosystem partners give the impression that the market is all sewn up by the primary vendor. But while these big vendors are, indeed, doing many things right, the market continues to reward smaller vendors who are doing good things in innovative ways.
Three such vendors, Sugar CRM, Five9, and Vertical Solutions caught my eye in New York, in part because they briefed me but more importantly because they can demonstrate momentum. Sugar managed to coincide a major new funding announcement with the event. On Wednesday, they let fly a press release announcing a new round of funding worth $40 million and led by Goldman Sachs. The size of the investment plus the identity of the investor were both notable in a market where multi-billion dollar CRM companies seem to have their pick of customers.
But Sugar has been surprising many people over the last four years. Since CEO Larry Augustin came in the company has boasted fifteen quarters of, usually, double digit growth. Last year Sugar signed up one of the most coveted customers and partners — IBM – for an implementation worth tens of thousands of seats. At the same time Sugar joined IBM’s Global Alliance Partner Program. As the company was announcing its funding in Cupertino and showing off in New York, it was in the process of going live with a tranche of new user seats at Big Blue — they’ve spun up nearly 70,000 seats as of Q3 2013. Sugar has turned a corner moving from selling under 100 seat deals to increasingly going after and winning larger deals with major corporations in North America, Europe, and South America.
According to Augustin, the company’s success is at least in part explained by the platform’s robust application development tools and API set. Many companies are turning to CRM today to be the base application for building apps that run on multiple platforms and in one way or another face customers, whether or not that means participating in sales, marketing, and service. In this Sugar has plenty of competition from Salesforce, Microsoft, Oracle and just about any other name your can mention but it also has momentum.
Five9 is another example of a cloud company that has been in the market for over a decade and is now catching fire. According to vice president of product and solution marketing Liz Osborn, Five9, which touts more than 1,800 clients, has staffed up recently with some of the brightest minds in the business. Led by CEO Mike Burkland, the company is now a small directory of people who have been successful in the telco as well as customer experience space.
They are now lending their expertise to this SaaS based contact center provider to help deliver some cutting edge functionality such as a new mobile supervisor app for the iPad that allows call center managers to monitor and manage staff from any location.
The company also has some strategic CRM integrations for Oracle RightNow as well as Salesforce — they just announced more than 150 joint clients — it will be interesting to see what this cloud contact center software provider does next.
Also in the call center, Vertical Solutions’ vice presidents, Ronnie Wegmann and Kim Brault attended CRMe. Vertical Solutions has reached critical mass in several markets, most notably in healthcare.
With the new healthcare law taking effect in January 2014, many hospitals, practitioners, and insurance companies are ramping up to provide the efficient customer or patient service that providers will need to implement new approaches.
VSI’s solutions are positioned to support the convergence of device support and care services. In addition, patient centered care models and readmission penalties will drive the need for healthcare services innovation — “Customer Experience” technologies including CRM, cloud, social, workflow, and mobility will be core requirements to drive new revenue models, effectively comply with healthcare regulatory changes, and minimize costs/risk.
Ronnie Wegmann told me VSI will be making several announcements later this year regarding innovative partnerships and market strategies. Meanwhile the company continues to add customers at a good clip.
Also worthy of mention is SAP. The company has been working hard over the last two years to bring to market an iPad sales application. I’ve seen it and it is beautiful. It incorporates powerful visuals and an intuitive design along with powerful analytics. I think SAP will go far with this and some other advances in their product line. My one critical observation, though, is that the sales tool seems more focused on selling to a large company’s installed base than for developing new business. As a practical matter, though, this has become an important aspect of life in large corporations so you can’t fault SAP for taking that position. But this is still evolving so watch this space.
Lastly, there are a lot of CRM shows or parts of shows dedicated to CRM and people can’t attend all of them, but I wonder why this show in particular is not better attended. This year I heard a combination of issues like August in general and summer vacation as well as back to school issues and show promotion. If they held this show between Thanksgiving and year-end the result would be similar. However, this industry deserves a more robust event and while shows like Dreamforce are hugely successful, they are single vendor oriented. The same is true in a different way, of the proliferation of analyst shows. The role and usefulness of the independent show should not be underestimated and I hope the magazine does a few things to built it up.
‘Tis the Season, I guess
The press release said all the right things. SAP was acquiring hybris, a Swiss ERP company that will help SAP get over into the online world that was started by the company’s acquisition of SuccessFactors, a human capital resources management company. This is largely good stuff as the company has been unsuccessful in its prior attempts to get to the cloud.
This acquisition reflects a growing trend in which ERP companies take on leading eCommerce partners. Oracle bought ATG for one billion dollars, NetSuite has some nice functionality that it developed in-house and now SAP is buying hybris. Nice. It shows that ERP vendors are thinking about how to expose some of their valuable ERP components in another form, in this case, product catalogues and related things that feed back to the supply chain to make for tighter integration from order to production to fulfillment and inventory.
It’s an important bet that some vendors can probably follow up with subscription support though it will take more work to get manufacturing ERP up to snuff for small value, high-transaction subscriptions. So I predict that the bumper crop of subscription companies from Aria to Zuora (clever how I did that, no?) will be hotly pursued in the next year as many terrestrial software vendors move to the cloud and find they need more and different infrastructure. Opening bids would be in the billion-dollar range, I suspect, but I wonder if someone like Tien Tzuo, CEO of Zuora, would even consider such a transaction given that Salesforce just paid $2.5 billion for ExactTarget. That would be a tough call.
For now, let’s not get ahead of ourselves. eCommerce is nice but it doesn’t fill the sales need completely; it’s more of a round peg in a square hole. Companies still need SFA/CRM despite my friend Zach Nelson’s (CEO, NetSuite) clever assertion that ERP is the real CRM system because it contains real customer data. As I have said before, and no intent to beat a dead horse but, you gotta have a system for managing proto-customers on your event horizon. Good thing SAP sees this and has made nice progress on its SFA and marketing packages.
Companies like SAP and Oracle are so big their primary concern is reselling or upselling the customer base so the bar is a little lower for them, except that Salesforce is making nice inroads with its Blue Ocean strategy and social and experience products in places like Toyota, General Electric, Coke, and Burberry’s. The resell isn’t a clone of the last sell — let’s see if any of the incumbents gets that.
Holy moly Salesforce announced they were buying ExactTarget for a cool $2.5 billion this morning. The deal will do much to complete CEO Marc Benioff’s vision of a MarketingCloud to go along with the SalesCloud and ServiceCloud of the company’s core CRM suite.
Some would say the Salesforce and the entire CRM suite vendor corps have been late to the market in developing a robust marketing solution and I would be one of them. However, it needs to be said that the vendor community played things well by a lot of measures.
For the last five years with a depressed economy it was natural to concentrate on service since the name of the game in a slowdown is to protect your core business. That’s what a lot of CRM vendors did, they beefed up their service and support offerings building in elaborate social architectures that enable their customers to service their customers effectively and at lower costs than previous modalities.
Fast forward to this year and the economy is picking up steam and that means a more traditional approach to gaining new customers and an emphasis on sales and marketing. Sales we know had been the bread and butter of CRM so it was logical for the vendor community to go after marketing.
For years, marketing has languished as the largely independent stepchild of CRM. Marketing is widely acknowledged to be CRM but its business processes are very different from service and sales and for that reason many vendors always put off building robust marketing functionality into their CRM suites.
Instead, marketing has remained independent with companies like Eloqua and Marketo running their own shows. But Eloqua was recently bought by Oracle and Marketo had an IPO just a few weeks ago, Pardot was bought by ExactTarget, which I think made the acquisition much more attractive for Salesforce.
However, I see some yellow flags waving on this deal. First off, $2.5 billion bucks can buy a lot of development talent (and a good weekend in Vegas). This is an expensive deal and I wonder why Salesforce didn’t want to build the solution itself. They seem to prefer buying over building these days and while I can understand buying for strategic reasons, I have a hard time when I see making a purchase as the default position. And, speaking of acquisitions, the buzz around the industry I had been hearing was about how long Salesforce would let Marketo wander around without taking them off the street. Guess we know now.
Secondly, there appears to be a fair amount of overlap between ExactTarget and Salesforce especially in the analytics arena. If you back the analytics components out of the deal, then you have to ask how much more development there would have been to build something that was Salesforce native.
None of that matters now; the deal is done and except for the price tag (I am a flinty, tight fisted New Englander after all) there is a lot to like about the combination. Instantly Salesforce gets 6000 ExactTarget customers but then again many of them are already Salesforce customers too. The combination also comes with serious marketing chops given that Gartner gave ExactTarget high marks in its recent Magic Quadrant.
I think the companies this affects most are SAP, Microsoft and Sage — add in NetSuite too. With Eloqua and now ExactTarget in enemy encampments there are fewer marketing options for these companies. This could make Marketo the bell of the ball for these vendors though right now Marketo is well tuned to being in the Salesforce ecosystem but it is not exclusive to be sure. So maybe Marketo walks out of this with a clearer landscape and more market power.
At any rate, it will take a few months for the dust to settle but ExactTarget is already in the market and executing with Salesforce customers so for the most part it’s game on.
There are two questions that emerging companies in the CRM space field when they face the analysts — when are you going public and why don’t you build out a full CRM capability?
The first question is easily and deftly handled by most executives and it must be. An IPO has its own cadence and the Securities and Exchange Commission is very keen to protect its turf even in an age when congress keeps tight control on regulators’ budgets. It takes almost no effort to fine an over exuberant executive for making statements about things that are not in the official filing or during the quiet period. So, smart executives stay very far away from those questions.
The second question is, or at least can be, a quagmire. There are many marketing software vendors who have necessarily built functionality that spills out of the pure marketing definition and that’s enough to keep some people wondering. A customer database is a good starting point. The argument goes like this: you already have a customer DB so how hard can it be to blow out another wall and add sales functionality and then, Voila! CRM.
That logic misses the point by a country mile and a decent customer service function, yet it doesn’t go away. But there’s more to it than even raw functionality. Why would any sane CEO of a fast growing marketing automation company decide to blow the budget and slow growth to build out sales and service in a market where the CRM niche is rather full?
My advice goes like this. Don’t do it. Don’t build CRM, there is absolutely no reason for anybody to build another CRM system. The niche is covered so move on. Take as an example the last decade-full of successful software vendors. Siebel didn’t build ERP and the reasons are the same. ERP was full, it was better for Siebel to focus on building out its CRM functionality and that’s what it did. Late in the game, before the acquisition, the company was working on master data management and making its client server solutions at home on the web. Siebel didn’t build ERP though many people asked why not, because the company was looking for the next big thing not the last.
Siebel got acquired and its independent plans were sidelined. But look at Salesforce and you see a similar pattern. Financial Force, Intacct, Zuora and many other companies sprung up to provide financial functionality to the fast selling CRM but Salesforce CEO, Marc Benioff, has been adamant about not pursuing ERP. He’s focused on building out a new interpretation of the front office that’s social, mobile, and customer experience focused. That’s called a Blue Ocean Strategy and I have written about it before.
The rest of the big players — SAP, Oracle, Microsoft — all have pretty good CRM and they all trail Salesforce according to Gartner’s recent rankings. Generally, while their products are good, they trail Salesforce by about a generation when it comes to leading edge front office ideas like collaboration, customer journey, and the like. They aren’t innovating so much as trying to be fast followers.
I think any marketing automation company that tries to build out CRM functionality would also be a fast follower. They’d trade in what they’re very good at to regress to the mean, the middle of the pack. Instead, here’s a question that they could profitably answer. How are economic and demographic changes affecting how people and companies buy and how does marketing fit into that changed environment?
People and companies have become comfortable and adept at shopping online and making decisions without the assistance of traditional sales people. At a minimum this suggests a winnowing role for traditional SFA. But it also suggests a rising opportunity for marketing automation defined as nurturing customers on their buying journeys.
It also suggests an expanding role for the call center, which might get smaller in the next decade while changing at least part of its mission. I don’t think today’s marketing automation has yet tapped all the possibilities inherent in that one observation, nor do I think that the incumbent CRM vendors have embraced the idea.
So, when I hear talk about new companies entering the CRM market, I cringe. CRM is robust and thriving but it is also consolidating. There won’t be five major CRM vendors ten years form now. The availability of good, fast, standards-based integration is high and products are getting better all the time. The next move in the front office is best of breed, not tightly integrated solution sets. The front office platform might be stabilizing but the apps that play on it continues to expand and they work increasingly well together.
The move for fast growing companies in the front office is in furthering the embrace of the customer through advanced tools and techniques that include social media and inbound marketing. No traditional ERP for sure and no CRM either and that’s becoming increasingly obvious.