They deserve a lot of credit for being a pioneer of SaaS, or to use their term, cloud applications, said Michael Fauscette, VP of IDC's Software Business Solutions Group. They did much of the heavy lifting to prove SaaS is a viable business model. Fauscette also believes that Salesforce.coms recent PaaS (Platform as a Service) push is a good move and should pay off well in the long term.
That said, Fauscette also believes that Salesforce.com may have a tough time going it alone and could well be an acquisition target in the future. While he declined to name names, Fauscette said that in the tech world there are three distinct castes: the top-tier companies who do the buying (Microsoft, IBM, HP, Cisco and the like); the attractive targets, such as Salesforce.com; and everyone else (those without the deep pockets to buy the missing pieces they need to be successful, and also lacking enough IP to be worth acquiring, except after a bankruptcy proceeding).
Fauscette is a tough critic when he divides the tech world up like this. In his view, even companies as successful as VMware and SAP are targets, not heavy-hitting buyers.
While Salesforce.com has been and continues to be a success, the competitive landscape is changing in ways that put it at risk. The company earned its stripes in the SMB market, but that original customer base is being eroded by cheaper offerings from Zoho, SugarCRM and others.
At first glance, thats not such a big concern. After all, Saleforce.com has been focusing its efforts for the past few years on moving up market, and it can now claim the likes of CNN, Motorola and Starbucks as customers.
The trouble is that just as Salesforce.com has made inroads into the upper tier, big players like Microsoft and Oracle have expanded their portfolios to compete in this space.
Theyre under a lot of pressure, competitively, Fauscette said. Oracle is very aggressively going after them. That should worry Saleforce.com. Oracle has a huge sales machine. Theyre claiming lots of wins versus Salesforce, and Ive seen some evidence of that.
When I posed the acquisition question to Bruce Francis, Salesforce.coms VP of Corporate Strategy, he declined to comment. However, he did tout his companys viability, as well as its head start in the cloud computing market.
Take a look at the Q2 2010 earnings report, Francis said. It shows that cloud computing has real resonance.
For Q2 2010, which ended July 31, 2009, Salesforce.coms revenues were up, year-over-year, 20% to $316 million. The company claimed 3,900 new customers for the quarter, bringing its customer base to 63,200. Net profit for the quarter was $21.2 million.
The Q2 earnings beat most analysts estimates. Some of the success can be chalked up to the weak dollar, which helped Saleforce.com gain overseas customers, such as the Japanese Governments Ministry of Economy, Trade and Industry. However, its expanding role as a cloud provider must also be taken into consideration which well get to momentarily.
During its Q2 earnings conference call, CEO Mark Benioff argued that it was the strength of its platform that was driving Salesforce.coms success. Benioff boasted that Salesforce.com has been scoring plenty of its own wins against Oracle and Microsoft.
He claimed wins against Oracle with insurance broker Marsh, along with Comcast, Thompson Reuters, AT&T and several others, while also saying that several new customers were former Oracle on Demand customers who got fed up and fled to Salesforce.com.
Against Microsoft, Salesforce.com points to head-to-head wins at Fujitsu, Progressive Media, Fain Capital, Etech and others.
Salesforce.com has also been broadening its portfolio beyond SFA and CRM. They recently made investments into SaaS companies targeting the financial and health care industries, backing FinancialForce.com and Practice Fusion.
Saleforce.com has always been a horizontal play, and these vertical moves show that it is intent on staking its claim to what it perceives as underserved, high-value niches.
Returning to Salesforce.coms cloud presence, Francis argues that it is the SaaS/cloud business model that is integral in driving future success. For shrink-wrap software companies, the bulk of their revenues are on the front end, with smaller service and maintenance fees from there on.
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