Salesforce recently announced the partial attainment of one of its long-range goals. In its second quarter earnings announcement the company said it had eclipsed its goal of a $10 billion run rate. This will be followed by similar announcements over the next year (first $10 billion year, etc.) and why not? They should celebrate.
Second quarter revenue hit $2.56 billion a 26 percent increase year over year, but for all the fanfare, anyone watching the evolution of the company and the market should not be surprised. Take nothing away from the skillful engineering and deft management over a prolonged period, but this day should surprise no one in that it was inevitable that some company would reach this milestone.
It’s also not surprising that a long list of established software companies such as Microsoft, Oracle, IBM, or others didn’t get there first. To understand the moment, we need to understand some of the economics behind it all.
First and foremost, Salesforce embraced a disruptive innovation like no other company. Established businesses like Oracle and Microsoft initially gave SaaS no attention and if they did, they denigrated it. The denigration was a great sign that the big guys were concerned but as always it seems concern didn’t turn into action until very late in the game. Siebel was upended by it. Oracle and Microsoft are right now still trying to establish their credentials. Established markets and business models prevented others from taking advantage of what SaaS could offer.
At the same time direct competitors of Salesforce did something just as foolhardy, they underestimated what they had. As an analyst covering the emergence of SaaS I could see that most other vendors saw SaaS, or hosted computing as it was briefly called then, as merely another delivery mode for software. As far as they were concerned they’d sell you the same product with various delivery options, such as a VPN, and call it a day.
What nobody saw, perhaps not even Salesforce, is that SaaS was and is a dramatic commoditization of IT. The SaaS era is the second half of what I refer to as The Age of Information and Telecommunications in a forthcoming book. In every age the first half is expansionary and inflationary and the period from 1971 to 1999 did that for IT. Those were years of costly systems, over runs, and big commission checks. But sooner or later markets revolt against runaway costs especially because a new technology has become so integral to life as we know it.
That’s when an industry turns its attention to efficiencies and economies and that’s precisely what Salesforce offered out of the shoot. Where other CRM products were complex and hard to customize, Salesforce positioned itself as easy (it had to be—the original product only had 4 tabs). Where others had expensive licenses, Salesforce charged by the seat-month. And where others needed expensive hardware and training, Salesforce bundled the hardware and promised an intuitive interface (again thanks to having just 4 tabs).
It all worked. Many people, including me, have explained Salesforce’s success along the lines of “The Innovator’s Dilemma,” and there was certainly a grass roots, bottom up factor operating as there is with most disruptive innovations. But the fact that Salesforce has been able to grow to dominate the industry that it was a late entry to suggests more was at work.
Perhaps the biggest question now is where we go from here. Most of the time, a company in this situation consolidates its position and rides off into the sunset. For Salesforce that would mean becoming the biggest name in CRM which they’ve done, at least by measures like Magic Quadrants. But so far they’ve resisted the temptation to go on autopilot. Every two years or so, they introduce new wrinkles that roil the markets and make everyone scramble to be the fastest follower.
Concentrating on their platform, machine learning and analytics, mobility, social networking, its partner ecosystem, and other topics has given the solution set a breadth and reach that is more appropriate for a general purpose software development house. That’s clearly where the company is taking this. There might still be 50 percent white space in the CRM market but it’s very niche oriented. So it makes sense to take a broader look at the market to ask where a 10 billion dollar company can have an effect that will move its revenue needle enough for Wall Street to notice.
Small companies especially have a distance to travel in adopting CRM-like solutions and much of their future adoption will depend on ease of use driven by the analytics and machine learning that Salesforce and others are building. Another growth possibility is IoT but I see yellow flags in the distance. IoT is in many ways another approach to commoditizing IT, but for non-human customers, and it is a market that will consolidate quickly around a few standards. More worrying, I think IoT will reach commodity status very quickly with few vendors able to make a living there.
For now it’s all in the future. Salesforce has done an amazing job of navigating this far for so long with such good results. It’s one of the biggest software companies in the world right now, the fastest to grow to $10 billion. Good job! Now back to work.
I swear I was getting through this and trying to move on. She wasn’t my favorite candidate but when you consider the alternative she looked like George Washington in a pantsuit. Like many people I had moved on from denial and anger to Elizabeth Kubler-Ross’ next stage in the grief pyramid called bargaining. He can’t be that bad…they can tame him…I’m going back to work, he can’t chase me there…I’ll be okay.
But noooo! A brief story in the New York Times today says Donald Trump, incipient POTUS is planning to hold a technology conference next week. It’s right here under this headline, “Trump Plans Technology Conference With Silicon Valley Executives.” The article by David Streitfeld, Maggie Haberman, and Michael D. Shear covers a lot of ground what with Trump also seeming to have cancelled the next generation of Air Force One today, which is also in the piece.
Says the article, “The list of those being invited was not immediately clear, but they could include Mark Zuckerberg of Facebook, Timothy D. Cook of Apple and Sundar Pichai of Google.” Sure, that’s right, Silicon Valley CEOs have nothing scheduled that far out so of course they’ll all trudge over to Trump Tower. Whatever it is, when a president asks for your time, he’s doing it in the name of all the American people so you more or less have to attend.
The one saving grace in all this might be (and we really don’t know all the details yet) the fact that these are all consumer technology mavens so far. Maybe Trump has a punch list of social media enhancements to go over or maybe he intends to build a wall between our electrons and the rest of the world. Or maybe Trump just wanted to call a fly-in for rich guys to compare private aircraft. His is bigger, you know.
Regardless, I’ll withhold judgment on Trump’s tech chops until I know if this is just show and tell for social media or if he really wants the skinny on what to expect in areas like machine learning, AI, the IoT, and a half dozen other techno-wizbangs that will rock his world soon. I’ll begin to worry when Ellison, Benioff, and Gates get summoned.
Nearly every generation sees the birth of what for it will define modern life as going forward. As uncertain as the twenty-teens have been so far, some day in retrospect economists may pinpoint this decade as important as the tipping points of 1870’s and the 1920’s. If that turns out to be the case there may be no better event to symbolize the beginning of the era than the Salesforce fiscal year kick-off in San Francisco this week.
It has been an eventful year so far for the company, its city (with the Super Bowl festivities taking over much of downtown), and even the nation. On the day after polling began in the presidential primaries (which were eventful in their own right) Salesforce CEO Marc Benioff laid out an annual plan and announced a reshaped product line that will contribute much to the story of what will be the new modern in enterprise software.
Just back from the annual confab of the rich and the forward looking at Davos, Switzerland, Benioff gave revenue guidance to the financial analysts pegging his company’s work product at $8.1 billion for the fiscal year that was only a few hours old. As a subscription company Salesforce can be reasonably sure of its guidance because most of those revenues are already under contract as unbilled deferred revenues thus making climbing the $8.1 billion mountain much easier.
Benioff mentioned the Fourth Industrial Revolution as a topic of discussion in Davos, which might correspond to the launch of a new long economic wave (aka a K-wave). Long waves are often associated with the late Russian economist Nicolai Kondratiev and I correlate K-wave formation with what I see as the inflection points around us today.
The product line received the lion’s share of visibility, but in one way, it seemed to me under reported. While the technology was impressive, its impact on business is the real story and that will take years to write.
The Salesforce product line has been renamed using a Lightning moniker attached to nearly every cloud, so for instance Sales Cloud Lightning is now how we reference what was once simple SFA.
Lightning-izing the product line brings a great deal of complexity to the technology but this is largely hidden from the user so that we can more truthfully refer to the product line as sophisticated rather than complex. This is important because it directly affects the perception of new modernity.
For a very long time, CRM product sets have been on a ramp up to complexity as vendors, including Salesforce, layered subsystems on top of subsystems. These included collaboration, community, analytics, journey mapping, wireless and mobile accessibility, and more.
The evolution of the multi-tenant, metadata driven cloud platform was a key piece of the puzzle. Under this umbrella, all complexity can be consolidated and managed so that users can construct business processes on the platform without necessarily getting hip deep in code. But that’s not sophistication. Sophistication happens when one can achieve Arthur C. Clark’s vision that new technology should be indistinguishable from magic. I think that’s where we’re going.
Salesforce didn’t get all the way to magic with its Lightning announcement but it certainly put down a marker, which I believe will serve as a reference point for the birth of the modern.
Fundamentally, the technology is easily accessible by those who need it but it has been abstracted. A new layer that supports the user as if it was an assistant in a business process hides the complexity with a sophistication that begins to border on magic. So users are reminded, they are presented with data and information to enlighten their activities, and data that surfaces within a business process directly or through inference, is captured and teed up for future analysis that will again inform users in their processes. This is cool stuff.
Let’s have a look at the announcement’s big parts.
Everything starts with the platform now known as Salesforce Lightning. Co-founder Parker Harris has, over several years, guided his developers to build a platform and stack that makes the magic possible. The Lightning-ization of Salesforce is largely the story of building the new platform full of services and of enabling all the apps to access these services and deliver them to the customer and employee facing applications.
Sales Cloud Lightning
SFA has been reimagined and added to so that it is a very different species than the one we started writing about in the 1990’s. Then SFA was a system of record, a tool for tracking basic contact information and the size of an order or a deal. The latest incarnation includes:
CPQ from recently acquired SteelBrick, which will accelerate, and for many companies standardize, the configuration, pricing, and quoting process.
Lightning Voice, an embedded telephony service that will see use in sales as well as service. Lightning Voice will enable reps to connect with prospects within the Salesforce application with all of its suggestions and prompts. Its functions include click-to-call, auto-logging of calls, and call forwarding.
SalesforceIQ Inbox, which brings the email inbox into the CRM suite through a suite of iOS, Android and Chrome apps that weave together Sales Cloud data with email and calendar apps of one’s choice.
Sales Wave App is just what you’d expect, analytics for the sales process. It is one of the sources of the information and suggestions that will change selling. New dashboards for things like pipeline trending were things that early SFA users could only imagine.
Salesforce1 Mobile. The big news here is full offline capabilities for iOS and Android devices. There are also 20 new Lightning Sales Components but I am getting tired and I recommend looking over the press release for even more detail. Check out Sales Path and Kanban.
Service Cloud Lightning
The Service Cloud got the same treatment in that service processes have been re-imagined but I’d say that this process of enhancement has been more evolutionary than revolutionary over several years. Nonetheless there were some big announcements including Field Service Lightning, which provisions CRM tools to dispatchers who will receive suggestions for service assignments based on location, technician training and skills, and availability. An Omni-Channel Supervisor gives call center managers more insights to better manage agents’ workloads.
Salesforce is also noting its 49th and 50th product releases in the coming year. These milestones will also bring to market further enhancements in virtually every part of the product line. For instance, the company will release Heroku for the Enterprise aimed primarily at developers of highly scalable customer-facing apps. There will also be Marketing Cloud announcements later in line with enhanced uses for Journey Builder, which in my estimate may be the most important part of any CRM going forward.
Briefly, journey mapping enables vendors to bring scientific management to what have always been chaotic customer-facing processes. When used appropriately journey mapping will significantly enhance the customer experience and drive better engagement. It’s going to be a big deal.
Pricing and packaging
Salesforce continues to use a gold, silver, bronze approach to product packaging and pricing and it has taken this opportunity to reset the packaging to reflect the bulging product line. It would be a sales nightmare to sell this product line a la carte and it would also be counter-productive to the user who needs all the pieces and parts to fulfill the vision of modern sophistication. So Benioff told me that the company will continue with three levels of pricing, albeit at somewhat higher rates, and it will pack more technology into each level. See the company for details.
The Lightning-ization of Salesforce completes the solution set transition from a system of record to a system of intelligent engagement. Using all of the capabilities together makes it difficult to do business as we have always done it, which is a good thing. I don’t think it’s possible to sandbag deals any more or generally hide things from the boss. CRM is no longer a chore to be performed on Friday afternoons. It is an assistant that will enable many people to work better, smarter, and maybe more productively.
But long as customers are still involved, nothing I have seen will truly accelerate business processes beyond the acceleration on the vendor side. Customers will still think and deliberate about offers thus presenting us with a kind of speed limit much as the speed of light is the ultimate speed limitation in the universe. But these re-imagined tools do something as important as speeding up customer-facing processes, which I have discussed here before. They open the door to managing many more customer situations per employee. This will of course raise productivity but even more important from a sales process standpoint, they make it possible to expand skinny pipelines, to make them fat and thus enable revenue acceleration if not exactly shortening individual deal times.
Today Bloomberg was atwitter with the rumor that Salesforce is in talks with bankers about possible tender offers from some big companies in the industry. Aside from wondering if there’s any validity to the speculation does it or would it make any sense?
For starters, Salesforce has a market cap north of $50 billion and buyouts command a premium so we’re looking for someone with deep pockets. Regardless of pockets, Oracle, Microsoft, and SAP have their own cloud projects and while any of them could afford the deal, would they contemplate throwing away their other investments? Ordinarily I’d dismiss a sunk-cost argument as illogical but we’re talking about a lot of money.
IBM could do the deal too and they need a future. Right now they’re buying back stock to keep their share price up and because they don’t have much else to spend their war chest on. Salesforce would be good for soaking up some of their cash. Ditto the others on the list.
Salesforce has a commanding lead in business software because while others were too timid to go after things like cloud, social, mobile, and IoT, Salesforce jumped in and made markets. Their future is full of all the new markets they’re going after and it ain’t small.
From that perspective, I wonder if the Justice Department would want to weigh in on an acquisition. Despite there being other vendors in the space, Salesforce occupies a unique place as the innovator. Can we really expect one of the possible suitors to be as aggressive with Salesforce and new markets as Benioff and company? Me thinks not.
That said though nothing is forever and Salesforce has had a great run. Murphy’s Law would suggest that someone could come in and mess it up.
It takes prodigious amounts of moola to launch a company these days and that’s especially true when trying to insert a new idea into the collective consciousness. Salesforce spent well over $100 million to convince us that SaaS CRM was real, Zuora has raised nearly 2X that amount defining the subscription economy, and cloud ERP is following suit.
Today FinancialForce, a cloud ERP provider based on the Salesforce1 platform announced a financing round of $110 million from lead investor Technology Crossover Ventures (TCV) and Salesforce Ventures, Salesforce’s corporate investment group. This follows on the heels earlier this quarter of smaller investment announcements by CPQ providers Apttus, and Steel Brick. So what does it all mean?
I think you need to pay attention to the concentration of money and deals in a tight space of ERP and related back office apps. They’re all cloud companies and it strikes me that the investment community is making a decision about ERP granddaddy SAP in the process.
SAP has tried several times to bring forth a suite of front and back office solutions based on modern cloud technology and they’ve been only modestly successful. Microsoft has made greater strides in bringing its multiple ERP products closer to the cloud but progress has been measured. Time’s up and small ERP providers like FinancialForce, IntAcct, and not so small NetSuite have been gathering strength over many years. The economic conditions are right and the market is, I think, making a call that there’s no more runway for legacy ERP vendors to get to the cloud; it’s time to seek out the next generation of solutions.
The succession plan for replacing legacy ERP is well under way with a surround strategy that first positions cloud ERP as a helper application that can consolidate data, process it, and feed it up to the legacy system. This is a meta-stable state and will eventually result in the surrounding solutions supplanting the legacies, achieving over time what a much despised rip and replace would ordinarily accomplish without all the wailing and gnashing of teeth.
Much of this is still in the future but for now, FinancialForce has taken an important step in preparing for a larger role in what is likely to be a big fight. The objective of the fight will be to secure stable cash generating relationships for many years to come.
Finally, more than once Marc Benioff, CEO Salesforce.com, has said he had no interest in building ERP but it looks like ERP is coming to his company regardless via the powerful platform technology, Salesforce1, that his company provides. Apttus, FinancialForce, Steel Brick, and other financial apps all coexist with Salesforce1 and some, like FinancialForce, are completely rooted there. Their success is also great validation for the platform.
I’d really hate to be a legacy ERP provider today.