Salesforce Earnings Revealed
Salesforce.com announced results for the first quarter yesterday and as expected the company is on a $2 billion run rate. That’s a lot of revenue and continued validation of the cloud computing model that Salesforce helped to innovate. Interestingly, while growth is robust at 34% on a year over year basis, it’s not the 80% or more the company enjoyed not that long ago. Still it is significant. Nothing wrong here, simple math shows that the bigger you are the harder it is to double in size. It also may have something to do with the available market size, one reason that Salesforce is so intent on releasing new products that address different markets.
If my math is right, Salesforce was up 34% or more than $125 million that’s like taking a-mid sized company and adding another one to it. Effectively the company is now adding four smaller companies to itself each year exclusive of acquisitions.
Bucholtz Moves to CRM Outsiders
Chris Bucholtz joins SugarCRM today as editor-in-chief of its semi-independent blog CRM Outsiders. He replaces Martin Schneider who left to become Vice President of Marketing at Basho Technologies.
Bucholtz is a solid technology writer and long time CRM commenter. Chris has 17 years of experience as a technology journalist. In 2007, he became the first editor of InsideCRM ) and followed that up by launching Forecasting Clouds in 2009. Full disclosure, his end of year rankings of significant CRM blogs has always put the Beagle Research blog near the top of the heap (Paul Greenberg has the top spot, which should probably be retired.) for which I am grateful.
Bucholtz brings a career of sanity to a part of the industry that can be fickle, changing with the proverbial winds. We welcome this move and look forward to his continued steady influence.
The Long Retreat Up Market
SAP is holding Sapphire, its annual user meeting in Orlando this week. Sapphire is one of the premiere events on the IT tradeshow calendar along with Microsoft Convergence, Oracle Open World, Sage Insights and Salesforce.com’s Dreamforce. These events each draw tens of thousands of people from around the world and each has a distinctly different vibe.
Sapphire is solidly ERP and enterprise computing (yes, I know they have CRM), Open World is about enterprise computing too but with more emphasis on a rounded picture that includes the front office, SaaS and, even before the addition of Sun, there was a strong hardware element as well. Microsoft focuses on front and back office but tries to appeal to a broader market of perhaps the Global 2000 with an array of front and back office solutions. Dreamforce is, among all of them, the most forward looking.
Salesforce has taken a decidedly different path to the enterprise. First, ERP is not on its radar. Though the company has a small subsidiary that specializes in financials, it was an acquisition that demonstrated the power if Force.com, the company’s development platform. Salesforce’s approach is to not look back at traditional financials but to imagine what the fully articulated front office will be and then to deliver it. In the process, they have made huge strides in platforms, database, development technologies, social media for business and more. The approach keeps them ahead of an increasingly crowded field of conventional front and back office computing.
Over the last few months I have watched as the ERP/CRM companies have all solidified positions relative to new technology. Each offers a cloud computing strategy that supports multiple flavors of hosting including multi-tenant SaaS but also, and somewhat distressingly for me, solutions that amount to hosting a data center off premises in ways that don’t look much different from historic approaches. In their uniformity they have basically kicked the can down the road for another decade — roughly the life span of conventional offerings.
No one wants to tell their enterprise customers that the days of on premise computing are limited and that running a single tenant instance in a datacenter in another zip code is at best a temporary solution. In 1999 we saw a controlled panic as companies worked to beat a deadline to update their systems to the four-digit date format of the new century. In ten years we’ll likely see a similar event as some of the same companies realize they have simply exported their conventional data center problems — lacking some standards, upgrades that were delayed and fighting the cost of buying hardware — but that they have not solved them.
So the ERP companies now all look poised to go through the next ten years with architectures that are a jumble of old and new. Moreover, they have all embraced similar strategies that support the idea of placing small systems, presumably in a cloud configuration, at their satellite locations while retaining a more conventional ERP system in the center to consolidate regional data. This is a brilliant, though severely flawed, strategy in my humble opinion.
There isn’t a major enterprise vendor who doesn’t think that they’ll be able to sell their version of cloud computing and a satellite configuration to their existing customers but I think there’s some danger in that. It looks like a classic retreat up market for the majors.
At the grassroots level there are companies like NetSuite, Microsoft and perhaps WorkDay that will not only take on the satellite work but their presence there will ideally situate them to grow up market and displace the legacy vendors. It makes good sense. As NetSuite CEO Zach Nelson observed at SuiteWorld last week, there has never been a software company that successfully invaded the lower reaches of the market from the enterprise but the world is full of examples of companies that grew up from the grass roots to take over important market segments. If you recall, this is precisely what Salesforce did with Siebel.
NetSuite is already ideally suited for this work with front and back office systems covered as well as ecommerce. Furthermore, the company introduced its ability to operate multiple divisions in different currencies with reconciliation across borders several years ago. NetSuite increasingly looks like a grassroots company with greater ambitions and if the keep innovating around the full suite of ERP, I think the world will look very different in ten years.
The challenge for the legacy vendors is to get out of their comfort zones. To take on cloud computing not as they wish it would be, complete with the fat margins they and their shareholders have grown to know and love. Rather they need to better emulate the lean and highly competitive companies they need to sell to and who are nipping at their heels.
I am writing this before the first keynote of Sapphire, it will be interesting to compare this analysis with the proceedings next week.
Late addition: Check out this short article in the Harvard Business Review for a similar take on the subject.
The Case for Cloud Modeling
Google’s blogger system was down for a couple of days last week and the bloggerati are up in arms about it. They have a point too. A software system delivered as a service that loses vital data and is down for unspecified periods cannot be relied on and if you can’t rely on cloud computing — which is, after all the heart of this matter — why do it at all? But too often it seems that the response to a problem like this, especially when handled by those who are emotionally involved and not by cooler heads can lead to a larger problem.
People like Ed Bott are calling for business strategies that do not rely exclusively on the cloud for storage. Bott obliquely makes the case for some form of local storage but I suppose a virtual back up to another vendor might also be possible and could even spawn a new enterprise level industry. But think of the overhead.
At its heart this is a “belts and braces” approach. A little digression might be in order here. We know what belts are and braces are a British word for suspenders. Belts and braces describes a needlessly redundant strategy for holding up one’s pants and has been in the lexicon as shorthand for all similar strategies for a long time though it seems to have fallen into disuse due to advancements in high tech belt technology.
At any rate, the opposite of belts and braces is counter intuition. We speak of “thinking outside the box” strategies as shorthand for being counter intuitive. What if we did the opposite of what appears to be the common sense solution? It doesn’t always work. Jumping off a bridge with wings strapped to your back won’t materially alter the outcome, so you need to pick your spots and use a bit more common sense.
Perhaps the best example I can give of this yin and yang of belts and braces and counter intuitive thinking comes from economics. We’re in tough economic shape right now and many people who should know better are saying we need to lower our deficit. Spend what you take in and not a penny more and you’ll be fine. But the historic record tells us this won’t work. It’s been tried before and deficit cutting by itself makes matters worse.
A better solution would be to start by asking what we’re spending money on and trying to figure out if the funding is going to beneficial and productive uses. I think we know the answer to that one. The American Society of Civil Engineers gives our infrastructure — roads, bridges, water and sewage treatment systems and other similar things — a D+ so we know pretty well that the money isn’t going there. Meanwhile, last week the heads of the five biggest oil companies testified in the U.S. Senate about their need for government subsidies despite the fact that they are the most profitable corporations in the history of the known universe.
Let’s not get too far afield though. The impetus to cut the budget rather than looking for ways to better spend money that will boost economic activity is understandable but wrong headed. In the General Theory of Employment, Interest and Money and other writings, John Manard Keynes got it right by pointing out that government spending needed to be counter intuitive and counter cyclical and that in bad economic times, government needs to be the buyer of last resort, temporarily replacing demand that the private economy cannot sustain in other ways. I am a Keynesian but I don’t want this column to be about Keynes. I am only making a case for counter intuition.
Back in the cloud, the idea of storing or backing up your data to prevent the kind of outage that happened last week at Google is a non-starter for several reasons.
First, if you back up data without backing up applications and making them available to run locally, you haven’t solved the whole problem. You have saved your data but you are still dependent on the cloud vendor to supply the application. Take either one away and you’re dead in the water.
Second, if you take the belts and braces approach and store your data as well as your programs, haven’t you obviated the need for the cloud? Of course you have so the solution is no cloud at all if you take this argument to its logical end point. Alternatively you have both — belts and braces — and you pay twice. Not smart.
But if you do give up on the cloud, then you also give up on the economies you achieve from it and you are back at square one in your data center with more demand for IT services than you can deliver with your budget and staffing levels.
Hmmm, that’s a tough one. What to do?
Clearly, we’re too far down the road to cloud computing to consider pulling the plug. There’s no safety back there only a different set of problems including the fact that your IT organization would now be responsible for providing 100 percent up time. Care to take that one on? Thought so.
The solution isn’t backsliding into conventional IT or quasi-cloud solutions but redundancy might play a part. I think the real answer can be found in redundancy, planning and policy. I know nothing about Google’s approaches to these issues but as an outsider looking in, it seems like there was little or certainly insufficient sandbox activity on Google’s part before they went ahead and upgraded the blogger software.
Sandbox activity, despite its childish sounding name, is a super-important and hyper-rational approach to avoiding this kind of problem. Rather than calling it a sandbox we should call it what it is, a model. Cloud vendors might be guilty of insufficiently modeling their customers and their services. A realistic model of the system that went down and the upgrade that caused it would most likely have caught the problem before it was one.
This is the kind of thing that only gets figured out in live practice during a product’s early life. The need for modeling is not hard to discern but until there’s a problem its an issue that won’t get funding.
So this was the wakeup call. We need much better system modeling in the cloud and I expect that smart customers will soon skip over their vendors’ comforting SLAs and pledges of a specific number of nines and ask the much harder question of how those nines get delivered.
Mirrored data centers and intelligent modeling policies as a standard seem like the next big steps in cloud computing. Counter intuition or thinking out of the box got us to the point of this solution, but there’s nothing counter intuitive about it. It is an approach that relies on redundancy but appropriate redundancy that is very different from the case where we were thinking about going it alone back into the past. I hope the people who think about the national budget think this way soon.
