SmoothSpan Blog

There are a couple of interesting posts from Sinclair Schuller and Renee Boucher Ferguson about an incident that took place at the OpSource SaaS Summit in San Francisco recently.  Apparently Phil Wainewright conducted a show of hands survey about the attendees intentions with respect to SaaS.  They had three choices. 

From an audience said to be about 250 ISV’s, 30 or 40 plan to build their own SaaS platform but let someone else host it–they don’t want to build a data center.  That’s definitely something I’ve been saying for a long time and it resonates with what I’m hearing around the Valley.

10 hands went up on the issue of using some else’s platform as well as hosting elsewhere.  Okay, it seems to me there aren’t very many platforms to choose from yet, so not surprising the response is way down.  In fact, I’ve said before that a lack of good platforms has impeded the creation of new SaaS companies.  There’s too much technology to build in today’s capital-shy VC market where companies are expected to bootstrap to customers on just a whiff of capital. 

The last question was the kicker.  Asked how many would build on Force.com for their application, only 2 hands went up and they said they were undecided.

Opps!  This is not the press they were looking for, I’m sure.  The two pundits discuss several reasons why this might be the case including:

– OpSource’s Treb Ryan suggests people don’t want to foreclose the option to partner with other players besides Salesforce.

– Schuller says that Force was an extension platform for Salesforce, and isn’t necessarily a great general purpose platform.  He goes on to raise the issue of IP and Business risk trusting everythign to Salesforce’s proprietary language.  Lastly, he summarizes the value of Force.com as marketing, not product.

I agree with Sinclair on a couple of his points, but both of these articles miss the biggest reason why ISV’s avoid Force.  I’ll explain in a moment, but I want to comment on the other issues.

First, on the idea that Force is just an extension platform and may not be a good general purpose platform, again, I agree.  I’ve suggested in the past that Force suffers from being “Same Old Platform as a Service”.  It adds value, but it isn’t revolutionary.  In my opinion, the value add is not commensurate with forcing development in a purely proprietary and non-open language.

Schuller’s second point about trusting your IP to this company and its proprietary language is another one I agree with.  I’ve said in the past that Platform Vendors need to act like Switzerland, and Salesforce ain’t no Switzerland.

Okay, that’s fine and well, but are those compelling arguments?  Won’t a few go with Salesforce just to partake of their tremendous momentum, particularly in light of their most recent quarter?

The answer is they can’t, and that’s the real big issue that the other commentators haven’t mentioned.  Force.com is too expensive.  The economics of SaaS are stark, and never more so given the capital raising climate of today.  SaaS vendors should be able to deliver their service for about 25% of what they charge for it.  Some do it for less (Salesforce in particular is a little more than half that), and some do it for more (Google’s “SaaS” is much more expensive, but still around 40%).  See my post on Multitenancy for more detail on this.  Here’s the punchline:  Force is priced at about $50 a seat month.  If you’re going to get that 25% Cost of Services, that means you’d have to charge $200 a seat month for your SaaS offering.  That’s 2x the premium offerings from Salesforce itself.  It’s a total non-starter for those who’ve done the math. 

Folks I’ve talked to who are starting SaaS companies are well aware of this.  Their view is that Salesforce is not a platform for developing your flagship app, it’s a platform for generating sales leads, which ties back to Schuller’s comment that Force is all about marketing not technology.

Note that Salesforce is trialing much lower pricing as we speak, but it’s pitched as promotional pricing only.  That’s a problem too.  Having already showed their (potentially greedy) hand, how do ISV’s trust that even with the right pricing SFDC won’t raise the stakes and instantly take all the profit out of their business at some future point?

Platform vendors have to be Switzerland. 

Force.com will likely sell reasonable well to Corporate IT for internal projects because they’re not price sensitive.  It may already be too late to reverse course well enough to bring on many ISV’s.