Back to School Week with Salesforce.com

Salesforce.com kicked off the analyst season with the first analyst summit of the year, and aside from inciting back-to-school analogies from an overly-relaxed group of analysts, some clear wins and opportunities, and a few issues, emerged that will both set the bar for the competition and keep Salesforce execs from entertaining any notions of complacency.

The clearest win of all came in the form of the company’s IoT strategy, which was without a doubt the most practical – as in demonstrating a clear value to companies that want to be early adopters – that I have seen in the past several years. Rather than boiling the ocean into a gigantic data lake the way GE is proceeding (actually, I think they’re shooting to boil all seven seas at once), or defining an IoT value prop that requires customers to make heavy investments on their own, which is the way many vendors are trending, Salesforce.com has focused on enabling IoT as a direct offshoot of its customer focus.

In a nutshell, IoT at Salesforce.com means using sensor data to inform or trigger existing customer-centric processes, like service and support, that companies are already performing. The difference is in the ability of IoT to have a device signal that it needs service, leaving the human-generated signal out of the picture. This sounds simple, almost too simple, and that’s the beauty of it. A lot of IoT scenarios I’ve seen of late place an implicit burden on the company embracing IoT in its manufacturing or service lines of business to create new processes in order to optimize their IoT opportunity. And the customers of the newly IoT-enabled company themselves need to create net new processes and adopt new technology on their end. Not good.

Asking companies to create and manage entirely new processes, on top of wiring up new data sources and analytical tools, is a prescription for… in the short, term, not a whole lot. This is the problem with most IoT strategies: Not a whole lot is the expected outcome for IoT strategies that require too much change of too many stakeholders too soon, and that’s what most IoT-wannabes are up to.

Another win came in the signs that Salesforce.com is increasingly looking toward its partnership with Microsoft, particularly around Office 365, as a strategic linchpin in its plans – I must have heard O365 mentioned a half-dozen times in the day and a half I was in attendance. O365 is a clear winner for Microsoft, and while Microsoft’s Dynamics CRM Online is hunting avidly for Salesforce.com’s game, the fact that Salesforce is aligning with the next generation desktop productivity platform is a clear example of pragmatism and opportunity coalescing for the benefit of customers. For millions and millions of users, there’s no better place for CRM functionality than Outlook, and this partnership will do a lot for the Salesforce.com users who’ve been jonesing for superior Outlook integration. (The deal may help Salesforce do a better job at the low end of the SMB market, another important challenge I’ll address in a moment.)

This is a radically different relationship than the one that SAP had with Microsoft earlier this century, when the two companies jointly developed a product called Duet that claimed to bridge the world of Office and SAP ERP. The product never really attained much traction, in part due to the fact that neither company was really in the mood for a mutually beneficial relationship – at best the two tolerated each other’s perceived encroachment into their respective sacred domains, and the overall lackluster sales reflected the underlying snarl in the relationship.

Not so with Salesforce.com and Microsoft – Satya Nadella has made this kind of partnership a virtue at Microsoft. While it’s clear that this continuing embrace isn’t great for Dynamics CRM – which has been a making a virtue of having a more modern UX than Salesforce.com at a lower average cost – the value-add for customers is unassailable.

But life in the CRM fast lane is complicated, and Salesforce.com’s efforts to be a platform company, and compete as one for both customers and ecosystems partnerships, is a good example of where some refinement is needed. The crux of the issue is what kind of cloud platform does Salesforce.com want to be known for. The statement of co-founder Parker “Lightning Man” Harris that Salesforce aspires to be the number one CRM platform provider begs the question of what this designation means for customers that are evaluating new cloud products and services based on the merits and demerits of the cloud platform they are built for.

While it’s good to narrowcast platform aspirations as much as possible – the broadest-based platforms will quickly drive themselves into commodity pricing and razor thin margins, á la AWS – Salesforce and its partners need to worry about what a customer looking at partner products that offer next-gen ERP, supply chain, asset management, IoT or other functionality on the number one CRM platform will think. Should I as a customer be looking at a CRM-specific platform to run my cloud back office or shop floor functions? Or should I look at some other vendor’s cloud, one that is more apt to be optimized for something other than CRM?

The problem is one of marketing focus more than anything, but, for a company that has always placed a premium on marketing, the problem is real enough to be worrisome. And in a market where every vendor is a platform vendor, and each uses its respective platform as an important adjunct to its products and services go-to-market efforts, this is no small issue.

File under “interesting” another conversation I had, this time with Leyla Seka, who heads Desk.com, and her colleague Stephen Ehikian from SalesforceIQ. The two execs spoke with myself and a number of analysts about the SMB market, one that I would argue is not considered the sweet spot for Salesforce.com anymore. Salesforce.com’s SMB market aspirations need some work – in part because, as Leyla said, Salesforce.com, like any other software company, would love to be the vendor of choice for the future unicorns of the world. Who wouldn’t like to establish a relationship with the next Uber and be there as it grows from nothing to unicorn overnight?

But what about the mid-market manufacturer doing $50-$100 million a year? Or the startup that’s just getting started? Desk.com can help with the support side, but I think it’s pretty clear that Salesforce.com isn’t the go-to CRM vendor for early stage companies or established, slow growth SMBs. Though who that go-to vendor should be is up in the air: I just did a major eval of CRM for startups, and to be frank, I was amazed at how little there was out there targeted at the low-end of the market: Pretty much every established vendor I looked at has added so many bells and whistles that they’ve made it too complex to start at the basics of what an early stage company needs. And many are more expensive than any startup would like, requiring 5-10 seat minimums at $50 or $65/month for more seats and more functionality than is needed. In startup land when every penny counts, and needs are simple, this kind of pricing is a non-starter and makes Excel look like a pretty good alternative.

Why does Salesforce even want to be in this part of the market, I asked, with its attendant channel complexity, lower margins, and relative cost of sales? The best answer I heard was that it wants to be in SMB because that’s where the company started, and paranoia about losing the SMB market runs rampant in the company. I think there’s better ways to deal with market anxiety than trying to be all things to all markets: serving SMB and large enterprise takes different DNA, and assuming the different strands can be woven into a single corporate helix is a common industry mistake. Unless Salesforce.com wants to claw its way into a major channel operation and fight the good fight in SMB through a vibrant and carefully managed partner program, it should largely step out of the market.

Paranoia, of course, is an important part of the mix that fuels success in enterprise software, and Salesforce.com can’t afford to pretend it has nothing to be paranoid about. This was another key theme at the summit: what can Salesforce.com do to prevent its own disruption, now that it’s the market leader and a legacy vendor in many customers’ view.

Those of us who remember how relatively easy it was for Salesforce.com to usurp Seibel know that the first lesson of avoiding disruption is to avoid denial, and every legacy vendor should designate a swat team to go investigate any new trend or opportunity that one of its executives scoffs at the way Tom Seibel scoffed at the nascent SaaS market. Salesforce is clearly not in the business of denying its vulnerability, I heard that from its execs at the summit more than once, and it’s moving in so many directions at once that it’s hard to find a trend that Salesforce isn’t trying to get a piece of.

That said, there are vulnerabilities that Salesforce.com is working to overcome. First and foremost is its user experience, which is one of the main reasons there’s a whiff of legacy in the air. (Eau de Legacy is a scent that lingers around almost every enterprise software vendor, BTW). The company’s forthcoming Lightning UX is designed precisely to deal with that problem, and according to Salesforce.com a significant number of its customers have taken a look. The assumption is they will like the new UX – that’s usually a given. Will they like the process changes that inevitably emerge from a major UX change? Not a given..

The second are the limits of online CRM, which has been a great beachhead for Salesforce.com but is getting a little long in the tooth as a market/buying center/differentiator. Hence the acquisitions strategy, the platform strategy, the analytics strategy, the IoT strategy, etc. etc. There’s a lot of moving parts to Salesforce.com, and like many of its competitors, integrating and consolidating all those moving parts into a cohesive whole is always harder than it should be.

Finally, there’s the pressure that Salesforce.com is feeling from the likes of Azure and AWS, pressure strong enough that company execs acknowledged they are considering whether to embrace these two competitors or hunker down for a long battle. It’s a battle that Salesforce.com will be hard-pressed to engage directly: The basic physics of enterprise software dictate that as Azure and AWS commoditize the bottom end of the PaaS market they’ll move further up the value stack in search of uncommoditized margins. One of the them, Azure, already has both a very successful CRM product and a truly impressive new ERP offering, AX 7, that’s the first all-cloud ERP that’s also an on-premise ERP. And Dynamics CRM and AX 7 both leverage Azure and the rest of Microsoft’s services like Office 365, Skype, Exchange, and a range of analytics that span everything from BI to machine learning to event processing. Both Dynamics CRM and AX 7 can also leverage Azure’s new ALM tool, Lifecycle Services, another big plus on the platform side.

Suffice to say that, Office 365 partnership notwithstanding, Microsoft and Azure are in position to put a dent in Salesforce.com’s platform plans, or, at a minimum, push Salesforce.com into a closer relationship with Microsoft on the Azure side. It’s one or the other.

As for Amazon – I don’t think there’s a successful business model on the planet that Amazon isn’t considering disrupting. As in the enterprise, with AWS as a launch pad, the sky’s the limit (actually Amazon’s drones mean the sky’s not a limiting factor either 🙂 ) I think Jeff Bezos and Amazon would be the platform competitor I would worry about the most, and it may make sense at some point for Salesforce.com to look over its shoulder at AWS and start working to co-opt the Bezos juggernaut.

Finally, growth and competition are spurring the company to hire another 10,000 (!!!) employees this year, basically a 50% uptick over the current 20,000 headcount. This is a mighty two-edged sword: on the one hand, a company that feels the need to increase its headcount by 50% is in the enviable position of planning for some seriously impressive growth, made all the more impressive by the $6.6 billion Salesforce.com is already telling Wall Street it will rake in this year.

The other side of the sword is that finding and on-boarding that many people is a Herculean task (think Augean stables), one made all the more difficult by the continuous dearth of quality talent that every tech company is feeling these days. Looking at average time to hire data helps highlight the complexity of the task: it can take from a little more than a month to many months to bring a new employee on board, particularly in tech. Each step along the way imposes costs and drains cycles from the recruiting company, which means that hiring that many people, even across the span of a year, will itself be a major challenge for the company.

All said, Salesforce.com is doing a good job of positioning itself for an increasingly complex and competitive market, one in which its early, and relatively easy, successes in CRM will be harder and harder to replicate. Customer choice for core CRM and its adjacencies is increasing, as is the proliferation of platform options and the ensuring confusion about what choosing a platform means for customers today. Assuming the paranoia about disruption can be kept alive, and the many current and future acquisitions can be rationalized, Salesforce.com has the advantage of tackling its challenges from a position of strength.

Which usually, but not always (et tu, Tom), works out for the best.

 

 

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