Tuesday, May 20, 2008

Salesforce.com @ NetGain: The Cloud that Ate the Enterprise Marketplace

At the SIIA NetGain conference in San Francisco George Hu, EVP of SalesForce.com Products and Marketing, gave both a great summary of their product philosophy and a demonstration of their Force.com integration with Google Apps. Nothing terribly new in all of this, but what struck me more strongly than ever was how both their philosophy and their product development parallels and integrates with Google. George mentioned conversations with Google CEO Eric Schmidt which indicate that they are aligned on far more than just the product level. It would be foolish of me to speculate on a potential acquisition of SFDC based on George's comments, but the more that SFDC develops as a market presence the more that it seems that it is repeating the Google business model for enterprise content services (also known as Software as a Service, or SaaS).

First and foremost, SFDC built a highly scalable architecture that would allow for multi-tenant hosting, a very geekish way of saying that they have a server farm that has common management of SFDC software for thousands of companies' protected data sets. This is not so different from Google's commitment to creating a highly scalable common search service for its online audience, instead of trying to use online search services as a way to sell software and hardware (does anyone remember AltaVista?). Making your services highly scalable as one of your primary proprietary advantages gives SFDC enormous power to become a defacto content services platform much in the same way that Google's power to crawl effectively gave it a key market advantage.

Instead of having to sell copies of this capability, like Google SFDC focuses on content services. Yes, we call them applications in many instances, but the net focus of these applications is to enable people to consume or publish content. Enterprise publishers talk about enabling workflows as a premium content service: there's no real difference between what SFDC is doing and what publishers are attempting, other than the desire of publishers to promote their own proprietary content. Add in SFDC's integration with Google Apps, including Gmail for email services, and you have an "80 percent solution" for enterprise workflows similar in scope and impact to Google's 80 percent solution for search. Yes, we still have many high-quality search engines for enterprises, just as there will continue to be many other high-value I.T. products in enterprises, but as a percentage of I.T. expenditures they are certain to dwindle as content services enabled via the Internet "cloud."

The similarity of Salesforce.com's marketing model was underscored by a presentation at NetGain from Google's Matthew Glotzbach, Product Management Director for Google Enterprise. Matthew highlighted in a simple graph how in enterprises the mediation of I.T. departments and other business functions in the purchasing of content and technology services from vendors is different from the consumer model, in which people can access and select services from any number of vendors without intermediation - creating more effective competition and, ultimately, coopetition between vendors. Security, data privacy are always touted as barriers to a transition to more consumer-like access to enterprise content but increasingly with the theft of laptop computers in airports, offices and just about anywhere it's not clear that a mobile-enabled workforce is going to be served well by anything but highly scaled cloud infrastructure.

Long story short, we are well on the way to the Google-ization of both enterprise content companies and enterprise I.T. companies by Salesforce.com in combination with Google, with Google Apps acting as the "glue" between the two parallel clouds. While there will always be other clouds out there for specialized purposes - you won't see low-latency securities trading networks on SFDC any time soon, for example - I think that what we're seeing is the content/applications cloud enabled by Salesforce.com as the emerging de facto environment for delivering content and technology services for much of today's corporate environment.
In the process of becoming that de facto platform, the ability of small and medium sized businesses to scale themselves rapidly and effectively will change the competitive landscape in business quite rapidly on a global basis. About the only real difference between Google's dominance and SFDC's probable dominance is that one did it on ad revenues and the other on subscription revenues. I.T. vendors and content vendors looking at the SaaS space need to move far more rapidly to build effective cloud-based products and services - and to recognize that a winning strategy includes owning the cloud sometimes and sometimes playing in other people's clouds. I hope that's not too cloudy to you, if it is, give a holler.
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