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By | Gavin Clarke 15th June 2015 11:38

Salesforce's $20 billion challenge: to go deep, deep, deep

Next chapter is a balance of neutrality and integration

Salesforce last month announced another quarter of growth, up 23 per cent, year on year. Only this time, there was also profit — the first in 18 quarters.

Thirty per cent of “top” deals for the quarter were new customers – Bank of America, John Deere, Western Union and Zurich Insurance, the toast of Wall St. Not just that, but Salesforce is the kind of IT supplier customers love.

Talk to customers — and partners, actually — and they display a strong emotional reaction towards Salesforce. The company’s CEO Marc Benioff is now boasting about having become the fastest “software” company to $6bn in revenue, and is set on becoming fastest to $10bn.

Salesforce has been making hay: a fresh breath in a stayed market. It's taken advantage of the flatfootness of the competition: Oracle, SAP and Microsoft have been permanently on the back foot against cloud CRM.

Yes, so what better time for a second, valedictory “world tour.” Salesforce last month descended on London on the British leg of that tour, the day after announcing first-quarter results.

On the GB leg, British heavyweight names paraded in a theater in the round at Dockland’s Excel: John Lewis, Barclays Bank, Vodafone, British Airways.

And yet, change is in the air. Salesforce has in fact become an acquisition target: Microsoft expressed an interest, according to reports, but the move scuppered by Benioff (on price).

It is within Salesforce’s power to continue growing by singing up new customers, net new and expanding within the customer base – selling what it has.

Salesforce now has six clouds to peddle: wave, sales, service, marketing, community and mobile applications. However, if it’s not bought, Salesforce’s challenge in next phase will come not in simply adding more corporate and public sector scalps to its belt – but going deep.

That means more than simply signing more departments with existing customers, it means more integration in core systems and more niche verticals.

And that’s not just challenge of technology; it presents a philosophical dilemma for a firm that’s started life as CRM-as-a-service. If tackled incorrectly, then that could see Salesforce turn into the kind of enterprise software firm it’s cast itself against: complex and difficult to implement, and treading on the toes of partners.

For the bravado of fastest-to-$6bn talk, Salesforce remains small compared with SAP and Oracle. Salesforce has 150,000 customers – but it doesn’t own entire companies.

Take Barclays: it’s not the whole of Barclays that’s using Salesforce – just mortgagees. John Lewis’s Salesforce has to talk to Oracle ERP.

President and vice chairman Keith Block hosted the London leg of world tour and prowled the Excel audience exhorting customers to buy more Salesforce.

Block, ex Oracle head of North America, wants Salesforce revenue of $20bn. Hailing from SAP, he’s imported his former employer’s taste for using SAP as target practice – his goal being to supplant SAP as world’s largest maker of business software.

Going vertical

But breadth isn’t sufficient for Salesforce, it needs depth – and herein lays a fundamental dilemma — something that’ll see Salesforce tread a tight rope.

On the one hand, Salesforce needs great verticialisation, essentially apps on the platform and part of the platform making more useful to customers in different sectors.

Going vertical is the thing that’s helped make Oracle and SAP indispensable to many, and broad. It’s something Salesforce is now engaged on, under Block.

Salesforce has relied heavily upon partners to deliver the apps for its platform but, to date, that’s not exactly been a runaway success.

The AppExchange market place, launched in September 2005 with 70 applications, and hit 1,996 apps by 2013, when the company announced it would roll white-label exchanges for customers. Block claimed the platform is now resident to 2,700 apps from ISVs and four million apps built by those customers. If Block is correct, then the number of commercial apps has grown by 704 since 2013.

Andrew Lawson, Salesforce senior vice president and UK leader, told The Reg more vertical apps are coming but warned it’s a long-haul: “This is Keith's baby and you will see us putting more and more investment into that ... It’s going to take some time.” Lawson, like Block is ex-Oracle.

“You will see some products coming from us in financial services market, things in retail, looking to work in partnerships as we are doing with Sage to develop the capability," he added.

But going vertical is risky: you need to know when to stop so the overlying platform remains application neutral and so you don’t start invading partners’ markets.

The other problem is being able to knit everything together on an API and at the data level. The risk here is that Salesforce becomes a consultant’s dream and a customer’s nightmare.

The pressure is there already.

The UK and EMEA vice president of Salesforce partner Cloud Sherpas, Colin Robinson, told The Reg his firm is moving into “wall-to-wall business transformations” that cover the full customer lifecycle from acquisition to support during and after the sale is made.

The question for Salesforce is how far it responds to this and tries to become the system of record for customers. That’s been the mantle of ERP, but Salesforce isn’t ERP.

Salesforce has already taken steps to cater to this: it spent $390m last year buying RelateIQ – an enterprise relationship manager that searches unstructured data in emails, social networks and calendars to track relationships among customers.

Darren Starr, chief executive of Salesforce consultant, StarrForce, explained to The Reg the kind of dynamic tension that Salesforce now faces. “People think a good CRM should be able to pull data from different systems so you aren’t constantly re-entering data – that’s the RelateIQ value proposition,” said Starr.

The question, therefore, becomes how deep Salesforce should go, and in what areas.

Take Configure, Price, Quote (CPQ). Salesforce has given choice, with Apttus, Steelbrick and Chameleon, but CPQ varies not just by business units, geographies and verticals, but also within the same vertical, such as finance.

Siebel – lost to Oracle — built the last-word in CPQ — but in so doing Siebel produced a monumental stack that became difficult to customise. It started as the alternative to Oracle and SAP (sound familiar) and it ended up being hated by customers.

Adding more to the Salesforce stack wouldn’t just make it harder to customize: it throws up integration challenges, across apps on and off the platform.

Integration is one of those how-long-is-a-piece-of-string questions in business. Salesforce already offers integration to enterprise cores SAP, Microsoft and Oracle via Lightning Connect, a framework, but the devil is in the detail.

But, notes Robinson: “You still need strong integration to the system of record, that’s ERP, and that’s a traditional IT challenge, not just for Salesforce.”

If you think ERP integration problems are a problem of SAP and Oracle, think again. Salesforce projects can, and do, already run aground.

Stupid humans

Starr reckoned he’s working with a “well known” Bay Area firm whose implementation of Salesforce had failed. He wouldn’t name names, but said like all such projects the cause is human – failure on the part of the customer to allocate sufficient resources. It’s an interesting development for a service that was supposed to help customers bypass such traditional complications.

“On a project like this, there has to be political agreement between departments,” Starr said.

Richard Martin is Change and IT Director at safety equipment specialist Arco, a SAP-first shop, and is now implementing a combination of Hybris and Cloud for Customer from SAP for cloud-based sales and marketing.

Martin examined Salesforce and concedes Salesforce was up to three years ahead of SAP but the pain of trying to integrate SAP’s data view of the customer and products with the Salesforce view just wasn’t worth it.

“We’ve talked to a number of businesses who have struggle to do it, who buried a lot of money into it. There are some great success stories out there, but there are businesses that have struggled to integrate Salesforce,” Martin told The Reg.

“We could have gone down the Salesforce route, absolutely — Salesforce is held up as the best cloud-based sales solution around. But integrating that to an SAP environment can prove very challenging. Lots of business have tried and failed and spent millions trying to integrate it.”

Salesforce under Block is moving up the customer food chain – bigger accounts, deeper deals. The firm’s staking a part of its future on the enterprise.

There are signs, now, that part of that move into the enterprise is to harness big data. Recently, Salesforce announced Wave for Big Data with Google, Cloudera and Hortonworks and Informatica as analytics cloud partners. Technical details were light, but the implication is you can use Salesforce’s mobile-friendly, button-and-slider centric Wave to display data crunched by Google and Hadoop on a smart phone.

However, there’s huge question over the need for this.

Salesforce is great at presenting data and wants to expand to encompass as much data as possible. Hadoop, while technically brilliant at crunching unstructured data, suffers from a lack of both user-friendly tools to build Hadoop and analytics and UI presentation that lets those end users, especially in the business, view the output.

Is this a match made in Silicon-Valley Heaven? No.

“It’s perplexing that Salesforce has its own user base clamoring to other database services and it went to connect to Hadoop, when users aren’t looking at leveraging Hadoop,” Chris Neumann, founder of Salesforce integration partner DataHero, told us.

According to Neumann, Hadoop is simply irrelevant to the majority of the business users, salespeople and marketers that use Salesforce. The data they do rely on lives in Dropbox, Excel, HubSpot and Marketo, and the latter two are DataHero partners.

Further, Hadoop is so complicated that it brings IT back into the picture for a service that has been so simple you don’t need the say-so of IT to install it.

Neumann claims Salesforce should be finding better ways integrate the apps on the platform. “Salesforce partners come to us saying they have two pieces of Salesforce software and the only way to combine it is to use DataHero,” he said.

“There is a hole for visualisation on top of Hadoop, I think there’s an argument that they can take Wave and use that beautiful charting opportunity and make a play,” Neumann said. “I just don’t know that’s what the business users are looking for.”

Benioff’s $10bn or Block’s $20bn

There is huge enthusiasm for Salesforce. It has been a fresh start for those tired of the cynical and calcified old world of hated business applications.

Salesforce can, and will, capitalize on this, racking up new sign-ups that translate into bottom line, whether it’s Benioff’s $10bn or Block’s $20bn.

The problem, though, is how far it hits those targets by simply continuing to sell what it is, or going beyond the horizontal platform to become customers’ system of record. That’s where SAP and Oracle have had the edge, in getting their hands on customers core date and owning the end-to-end digital process.

It’s where, too, SAP and Oracle have become indispensable, by offering a bewildering catalogue of niche apps, either their own or partners.

One Salesforce partner I pushed at Worldtour to say what Salesforce could be doing better, or where it should be paying attention, told me he reckoned Salesforce has a window of about three years before competitors finally get their acts together.

Judging by Arco’s Martin, it would seem SAP customers feel that firm is finally gearing up.

The question will be how far incumbents can go before Salesforce does define and deliver a vertical and integration play — play that keeps its true to itself. ®

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