Software for Rent

November 15, 2007

Marc Benioff has never been modest in his dreams for Salesforce.com, the business software company he founded in 1999.

Mr. Benioff, whose appetite for brash publicity and business growth matches his bulk, declared several years ago that Salesforce would be “the Microsoft of the 21st century.” Never mind that his company brought in over a year what Microsoft garners in a few days. Or that another company, Google, seems more likely to wear that label.

Salesforce promised to revolutionize the way businesses buy software, and to a large extent it has accomplished that in one market niche: customer tracking. Its innovation was in turning software into a service that is leased over the Internet, instead of something bought and installed on company computers.

And yet for Mr. Benioff, the company’s chief executive, that is not enough. He wants to turn Salesforce into a platform like Microsoft’s Windows operating system, a product so popular that it is the foundation for a veritable ecosystem of software developers.

“In our industry,” he said, “the only companies that really make it big move from being a killer app to being a platform.”

But whether he can pull off that strategic leap is unclear. Salesforce has started to look less revolutionary as larger, more established companies have adopted its leasing model. And as Mr. Benioff himself notes, few software companies successfully make the move to platform status.

Yet that jump is critical to Salesforce’s long-term success. Its share price has tripled in three years, showing that investors are counting on success beyond the market for customer-tracking software.

“It’s been very impressive what Salesforce has pulled off,” said J. Bruce Daley, editor of The Enterprise Software Observer, an industry newsletter. “But I think this is a company about to hit a wall.”

Like others, Mr. Daley declared it “logical” that Mr. Benioff would try to use its beachhead in managing customer information to establish itself as a platform, a kind of holy grail of the software world. The plan is to persuade outside programmers to do what Salesforce cannot afford to do on its own: round out the company’s offering of products so that customers can lease a greater range of business tools, like payroll and accounting software.

“But the jury is still out on whether ultimately it will be successful,” Mr. Daley said.

It does not help Mr. Benioff’s cause that the subscription model’s success has inspired software firms, including Microsoft and SAP, the German business software giant, to offer subscription-based versions of their own products for customer relations management, known as C.R.M. That means Salesforce faces increased competition in its core market at a time when it is focusing on selling itself as a platform.

And then there is the competition from smaller companies like NetSuite, which uses the same leasing model to offer a full suite of applications it has built, including billing, accounting and other critical business tools.

Peter Goldmacher, an investment analyst for Cowen & Company, is among those arguing that Mr. Benioff should — at least for the time being — throttle back his wider ambitions and stick to his primary business. Mr. Goldmacher was once among Salesforce’s most prominent Wall Street boosters, but he has tempered that enthusiasm.

“My concern is that this is a company letting itself get distracted,” Mr. Goldmacher said.

In the late 1990s, Salesforce was one of a group of start-ups exploring ways to capture a share of the lucrative business software market using the leasing model, also called “software as a service” and “on-demand computing.”

The leasing model, its supporters say, permits companies to avoid the expense and headache of installing complex software packages that typically require huge outlays of cash for hardware and software upgrades.

“It’s all about letting our customers pay attention to innovation and not infrastructure,” Mr. Benioff said. “Software as a service is about freeing them from having to hook up another computer in another data center to another database to another application server to another security server.”

In the battle for a share of business software dollars, Mr. Benioff chose to focus on customer relationship management tools, a relatively small corner of the market. Such software would help sales representatives track customers and potential customers.

“C.R.M. seemed a perfect place to start and prove our concept,” he said.

By contrast, NetSuite focused on creating an on-demand financial product that handles tasks like billing and accounting precisely because they are so central to a business.

“Our strategy has always been to be the application you run your business on,” said Zachary A. Nelson, chief executive of NetSuite. “Salesforce chose an easier route.”

Though the two companies were started within weeks of each other, Salesforce has 35,000 customers, compared with NetSuite’s 5,300. But Mr. Nelson said he sees a strength in those numbers. “The same reason companies are slow to come makes them slower to leave,” Mr. Nelson said.

In response, Mr. Benioff described NetSuite as “not worth talking about,” given its relatively small size. Instead, he was eager to discuss larger companies like Microsoft and SAP, and he said their moves to on-demand software are a testament to Salesforce’s success.

In September, Microsoft started selling Dynamics CRM Live, an on-demand version of Dynamics CRM, the shrink-wrapped software package the company has been selling for four years. At around the same time, SAP unveiled Business ByDesign, an online version of the company’s array of business software, aimed at medium-size businesses.

At a news conference to promote that product, Henning Kagermann, SAP’s chief executive, declared ByDesign “the most important announcement I’ve made in my career.” But those who follow the business software market are generally skeptical that SAP, a company whose sales staff has thrived on selling multimillion-dollar software packages, will be as aggressive offering a cheaper version of its own product line.

These same analysts, though, tend to be more bullish about Microsoft’s chances against Salesforce.

Mr. Benioff dismissed Microsoft’s offering as “an inferior product,” but analysts said that Microsoft needed only a strong offering, not a superior one.

“If you know how to use any of Microsoft’s desktop tools, you know how to use Microsoft’s C.R.M. product,” said Bruce Richardson, the vice president for research at AMR Research, a technology consulting firm. Microsoft is a minor player in the C.R.M. market, but its Office software suite is installed on hundreds of millions of computers. And the company has priced the on-demand version of its C.R.M. software to be significantly cheaper than Salesforce’s offering.

“That’s classic Microsoft: to aggressively attack from a position of weakness to gain market share,” said Mr. Goldmacher of Cowen & Company.

Mr. Goldmacher had high hopes for Salesforce when the company went public in 2004. But he has cooled on the company since then; he said that over the last 18 months, Salesforce has lost its focus.

“More and more, I see them chasing bigger opportunities that won’t necessarily pay off,” said Mr. Goldmacher, who now has a neutral rating on Salesforce’s stock.

“What they’re telling the Street is, ‘We don’t care about profitability,’” Mr. Goldmacher said. “Their story now is that C.R.M. is just the bait, and the platform the real hook.”

Despite $497 million in sales, Salesforce posted a loss of $3.6 million last year.

Mr. Benioff counters critics by noting that although the platform project is less than two years old, the company is selling more than 700 add-ons, most of them written by third parties. Salesforce, working with a pair of venture firms in Silicon Valley, has created a $25 million fund that will provide seed money to companies seeking to build applications for the Salesforce platform.

Salesforce has also entered into a series of partnerships with Google, hoping to ride whatever success that company has in social networking and office applications, a field now dominated by Microsoft.

Many of the add-ons require customers to download additional software, which waters down Mr. Benioff’s simplicity message but also could make customers more loyal.

“The more our users customize, the more they are tied to our service,” said Steve Fisher, the Salesforce executive overseeing the platform project.

Another issue is that Salesforce is mainly used by sales staff needing to keep track of leads and customer lists. To AMR’s Bruce Richardson, that is not a very large step toward empire building.

“Marc wants to be the Facebook of the enterprise, but he’s missing a key piece,” Mr. Richardson said — a core product so popular that it naturally grows into an environment that attracts hundreds of third-party software vendors.

That is where the company’s partnerships with Google might prove critical.

“Marc is waiting for Google applications to mature,” said one former Salesforce executive, who asked not to be identified. “If it can link with Google applications, then maybe Salesforce can develop into a platform.”

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RightNow, Demandware Mash Up CRM, E-Commerce

October 30, 2007

RightNow and Demandware have developed a new mash-up that integrates the former’s CRM and customer service offerings with the latter’s e-commerce suite.

The result is an application that incorporates product content management and promotion with such interaction functionality as click-to-chat, while marrying order-tracking and management functions to the agent desktop.

Specifically, the new application connects RightNow’s service, marketing and sales applications with Demandware’s Web platform and e-commerce services.

RightNow’s contributions to the mash-up are its inbound and outbound sales and service desktop, multichannel customer service, marketing communications and customer feedback capabilities.

Demandware is providing its online storefront, site search, guided navigation, product catalog and promotions, Web development environment, user profiles and online content.

Suite Approach

On one hand, this mash-up can be viewed as a shortcut to bringing a suite application to market, as it eliminates much of the work involved in developing one from the ground up.

However, it is a mistake to assume that RightNow or Demandware have joined forces in such a manner strictly for competitive reasons, Yankee Group analyst Sheryl Kingstone told CRM Buyer — specifically with a vendor like NetSuite, the top online suite provider offering deep CRM functionality.

“RightNow rarely goes up against NetSuite in deals,” Kingstone said. “Also, RightNow’s target audience is larger than NetSuite’s.”

Rather, the larger point behind the mash-up is that it is emblematic of RightNow’s MO of automating integration around the customer experience.

The territory that Demandware owns — namely the order management process — is a critical integration point that RightNow has thus far not touched.

“Unfortunately, it is only offering this integration for the Demandware customer base,” Kingstone said.

Integrating the Online Channel

Later this year, the two companies plan to cross-sell and upsell the joint application to their respective installed bases, Scott Todaro, director of product and industry marketing at Demandware, told CRM Buyer. There is little overlap among the two firms’ clients.

There are no concrete plans, however, to embed the joint functionality in future releases of the respective applications. It may be, though, that the mash-up is enough to satisfy users’ needs — at least in the immediate term.

The driver behind the joint application is the growing necessity of integrating the online channel into back-office functions, explained David Hayden, director of product strategy for RightNow. That’s especially relevant as more companies rip out their legacy systems and replace them with SOA (service-oriented architecture)-based applications.

Vendors and their customers alike, Hayden told CRM Buyer, “are really looking to connect the various business units around solid, go-to-market strategies.”

Kingstone echoed that prediction — at least in terms of the mash-up service providing a faster time-to-market vehicle.

“The future of software will focus on mash-ups like these,” she said. “At bottom, they are all about breaking down the barrier posed by integration.”

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Tailored software becomes key to Saas model’s success

July 4, 2007

No licence fees to pay, no hardware to install and no maintenance burden to shoulder. It is no wonder that the concept of software-as-a-service, or Saas, is changing the way many companies purchase and deploy enterprise applications.

Take, for example, Allianz Cornhill, the insurance company. In 2006, it rolled out a CRM system to 350 underwriters and sales staff, so they could track and manage the process of converting sales leads into policies.

Rather than deploy the software in-house, however, Allianz Cornhill opted for a suite of hosted applications from Saas provider Salesforce.com.

As a result, its CRM tools and data are hosted, managed and regularly upgraded by Salesforce.com staff in the provider’s own data centre. Allianz Cornhill staff, meanwhile, access them over the internet and pay a monthly, per-user subscription fee for the privilege.

It was not hard to convince senior executives of the attractions of the Saas model in terms of cost and convenience, says Phill Harding, broker development manager at Allianz Cornhill. For a start, the roll-out of the software took six weeks, where an equivalent inhouse deployment might have taken months, he says.

“In fact, once the concept had been adequately explained and demonstrated and the solution was in place, we were asked by senior executives: ‘Why haven’t we used this approach before?’,” he says.

Others are wondering the same thing, and demand for Saas applications is soaring. Recent estimates from analysts at IT market research company Gartner, for example, suggest worldwide sales growth of 21 per cent this year, to $5.1bn. By 2011, they say, Saas will account for one-quarter of business software sold globally.

“Ease of use, rapid deployment, limited up-front investment in capital and staffing, plus a reduction in software management responsibility all make Saas a desirable alternative to many on-premises solutions, and will continue to act as drivers of growth,” says Sharon Mertz, a research director at Gartner.

Some potential users, however, still have reservations about Saas. If information is power, and data among the most valuable of corporate assets, they ask, then why would we put them in another company’s hands?

How can we customise software that is hosted remotely by a third party to fit our company’s unique business processes? And how can we possibly integrate Saas applications with the core in-house systems that remain vital to our business?

These are all areas that leading Saas providers, such as Salesforce.com and NetSuite, are working hard to address.

In terms of reliability and availability, for example, NetSuite offers a money-back guarantee of 99.5 per cent uptime. “Most companies would really struggle to achieve that kind of uptime inhouse and yet we offer it consistently to our customers,” says Zach Nelson, chief executive of NetSuite.

And, following well-publicised outages in early 2006, Salesforce.com has upgraded its architecture and can now promise uptime of 99.999 per cent, according to Lindsey Armstrong, the company’s European president. In addition, it has committed itself to full disclosure of performance metrics via a website that was launched in response to those outages, trust.salesforce.com.

Other obstacles to Saas are “more perceived than real”, says Robert Bois, an analyst with market research company AMR Research. “Integration and customisation are still common concerns that our clients raise with us, but in fact, the larger Saas suppliers are pretty good at solving those problems and the technology of the multi-tenant architecture that underpins Saas solutions has matured sufficiently that they’re no longer a big issue,” he says.

At one time, a “one-size-fits-all” Saas approach was the norm, and “plain vanilla” functionality (where the same product is deployed by all customers) was viewed as the necessary trade-off for relatively low cost of entry.

But recent technological advances have changed all that. “Not only can you customise pretty much anything you need to in NetSuite, but those customisations carry over every time the application is upgraded – and we upgraded NetSuite 400 times last year,” says Mr Nelson.

“You certainly don’t get that when you customise on-premise software and then need to upgrade it,” he adds.

“We do a huge amount of customisation,” confirms Andy French, head of information systems at NetSuite customer Opal Telecom, a division of Carphone Warehouse. “These tweaks and changes range from making certain data fields mandatory to installing Java scripts that drive system logic and user behaviour,” he says.

In fact, the only limitation facing Carphone Warehouse, which has more than 3,000 users of Netsuite company-wide, is the number of skilled IT people available to do that configuration, he says.

Integration between Saas tools and inhouse applications is also more commonplace these days. Most Saas companies publish application programming interfaces (APIs) based on web services standards, which allow disparate systems to exchange data whether they are based inside the firewall or on a third party’s premises.

According to Ms Armstrong, more than half of all API calls to Saleforce.com applications come from non-Salesforce.com systems.

Analysts at Gartner, meanwhile, predict that by 2010, three-quarters of large enterprise Saas deployments will have “at least five integration or interoperable points to on-premise applications”.

But with increased scope for customisation and integration of Saas products comes greater demand for outside help – a point not lost on a number of leading systems integrators, including Accenture and Deloitte, who have already set up dedicated practices in this area. Mr Bois of AMR Research says other IT services firms are “eager to tap this market, but less willing to go on record with details of their Saas strategy. They’re taking more of a ‘wait and see’ approach.”

One company that is certainly not holding back is Saaspoint, a specialist Salesforce.com implementation and consulting partner led by John Appleby, who previously worked for Salesforce.com and was that company’s first EMEA employee. “Demand for help with Salesforce.com implementations far outstrips supply and, as long as Salesforce.com continues to grow so quickly, we don’t see that demand drying up,” he says.

For Saaspoint, buoyant demand currently translates to year-on-year quarterly sales growth of between 250 per cent and 300 per cent, fuelled by projects at leading names such as P&O Ferries and pharmaceutical company Quintiles.

This flurry of progress suggests a rosy future for Saas, not to mention the consultancy ecosystem that is fast springing up around it, says Mr Bois of AMR Research. “Already, there are few areas of the enterprise applications industry untouched by Saas,” he says.

And as software companies associated with more traditional models of software delivery, such as SAP, Oracle and Microsoft, catch up, he says, the case for Saas deployment can only get stronger.

By Jessica Twentyman

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NetSuite Beefs Up E-Commerce Services

January 16, 2007

By Richard Morochove

One of the difficulties that any small e-commerce business faces is integrating the flow of information to and from its Web site, which is typically hosted by a service, and its accounting software, which usually resides on a local PC or server. You can periodically upload new inventory data and download new sales data to keep things in sync, but that approach doesn’t work as seamlessly and efficiently as it should.

One solution is NetSuite, a venerable online service that handles business accounting and financial management and can also host a financially integrated e-commerce Web site. While NetSuite boasts impressive accounting capabilities, until now it did not offer much flexibility for handling high-end e-commerce needs.

The latest round of improvements to NetSuite significantly enhances its Web site creation and management capabilities. I looked at a beta version of NetSuite version 11, which adds feature after valuable feature for e-commerce businesses, particularly those that sell through different channels, such as retail and wholesale, and those that target international markets.

However, these improvements come at a cost. Feature-rich NetSuite isn’t designed for a budding business on a tight budget. You will spend $1100 per month or more to gain access to the broad range of services that it offers.

Multiple Sites Supported

NetSuite now lets you manage multiple e-commerce Web sites, each with its own domain if necessary. Each site is capable of providing multilingual product descriptions and handling payments in multiple currencies: For example, a site visitor from the United States could read product descriptions written in English and price them in U.S. dollars, while a visitor from France can click on a menu and choose to view descriptions in French and prices in euros. You can establish one site to target consumers, while another aims at wholesale dealers with lower prices and higher minimum purchase requirements. All sites can draw from the same product inventory data.

Every e-commerce app can show you what you sold, but NetSuite now lets you see what you almost sold. NetSuite tracks shopping cart abandonments, so that you can view what products shoppers selected but ultimately opted not to buy. You can then try to capture this lost business by offering the shoppers a special coupon or another incentive.

If you’re a budding Amazon.com, you can use some of the same tools as the big guys to boost sales, such as the automated upsell/cross-sell that recommends related products and ones that previous buyers have purchased.

NetSuite now supports digital downloads for electronic products, a useful feature for sellers of e-books, software, and digital music.

E-commerce sites are often heavily dependent on visitors referred by major search engines such as Google and Yahoo. NetSuite tracks which search terms are most productive in attracting both visitors and sales. The reports can distinguish between the results from free, natural (sometime called “organic”) search referrals and pay-per-click search engine ads, which cost you money.

From NetLedger to NetSuite

NetSuite is now almost unrecognizable from the original service launched years ago, when it was called NetLedger and was marketed as a $10-per-user-per-month basic online alternative to Intuit’s QuickBooks. NetSuite has moved so far upscale that there’s little overlap between their markets now. Today’s NetSuite might appeal to QuickBooks users at the very high end, who are probably running QuickBooks Enterprise Solutions.

NetSuite’s new international e-commerce and Web site creation and management services are currently in beta testing and should be available to NetSuite users in the second quarter of this year.

NetSuite’s base price is $499 per month for a single user. Additional users cost $99 per month. The Site Builder and Site Analytics services cost an additional $299 per month each, regardless of the number of users. That sounds like a lot of money, but it includes accounting and finance functions, Web site hosting, and other capabilities such as calendar and task management. A free trial is available.

NetSuite is overkill for a mom-and-pop operation selling a couple of thousand dollars worth of merchandise per month. However, if you sell at least $20,000 per month and are looking for a platform that would support your business revenue growth to $200,000 or $2 million per month or more, then NetSuite could be just the e-ticket.

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