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Salesforce Headed for Siebel’s Fate?

Posted by Bob Warfield on May 23, 2008

Fellow Enterprise Irregular Josh Greenbaum has predicted that Salesforce was heading for a fate similar to Siebel’s–namely that they would fall into decline soon.  In fact, we’re already past the point where his first such prediction should have kicked in.  A year after that first post, he’s sticking to his guns by saying that even though Salesforce appears to be growing (their latest quarter was a blockbuster), trouble in paradise is still inevitable says Josh.

Greenbaum’s dire predictions are based on the following fundamental flaws he sees with Salesforce, which are similar to flaws he saw in Siebel even earlier:

1) Salesforce CRM is not deeply integrated with ERP, and so it is easy to replace a CRM system.  They’re not sticky.

2) CRM competitors are doing deep integration with ERP on their own offerings.

3) Salesforce lacks a next big market play to give it legs on which to grow beyond the CRM business.

His argument for why the prediction has largely failed to date boils down to Microsoft and SAP being slow to deliver their SaaS solutions.

With due respect, let me disagree with all of this.

First, was Siebel killed by deep integration?  I don’t think so.  Siebel was killed by an inability to differentiate itself.  SAP and Oracle were steadily adding features to their CRM offerings to the point where it became really hard for Siebel to point to a killer feature and argue it was enough to justify adding an additional vendor for IT to support.  It’s the classic bane of any category–eventually the big suites achieve 80/20 parity so that the features 80% of the audience need are available in all the offerings.  At that point you wind up with a commodity, and the lowest cost wins.  Cost in this case, is Total Cost of Ownership, and dealing with one vendor with a suite is usually lower TCO than dealing with a suite vendor and a best-of-breed component.  Data integration for most of these big suites is useful, but it is often way over-hyped.  This is particularly true when we look at the killer data integration requirements for CRM to ERP.  There just aren’t that many, particularly not for Sales Force Automation.

Second, Siebel was both lucky enough, and unlucky enough, to be an empire built at an extraordinary time.  All of today’s big enterprise software vendors got big due to this extremely unusual time when the market gave them two external sources of rocket fuel for explosive growth.  First we had Y2K.  Then, just as we got a handle on that, the dot com bubble struck.  There can be little question that a lot of unnatural growth happens when market conditions conspire to compress what probably should have been 20 years of growth into more like a 5 year period.  When the dot com bubble burst, and IT cuts were the hangover price to be paid for the binge, a financial climate was created for public software companies that was ideal for the likes of Oracle. 

Suddenly, justifying that best of breed solution became almost impossible no matter what the features.  IT had not delivered on all the promises of the dot boom era, and skepticism was at an all-time high.  Siebel exagerated its customer satisfaction position as Greenbaum points out, but something much worse was also exagerated.  That was the promise that CRM software could radically overhaul the sales process and drive vast revenue growth for any company that bothered to deploy it.

My third point is based on this idea that complex CRM, the kind involving huge Siebel-era projects, had failed to show commensurate results.  It opened the door for the lean mean SaaS competitor in Salesforce, to jump in.  Deep integration, highly custom workflows, and massive customizations are all things that at least in the beginning were not even an option for Salesforce.  The amazing thing is that the world was tired of all that by this time.  It hadn’t really been worth it anyway.  That coupled with a strong push to commoditization was the perfect launching pad for Salesforce.  Even relatively large companies discovered that a straightforward deployment of Salesforce out of the box delivered nearly all the benefits of an expensive highly customized (and highly integrated) CRM solution at a tiny fraction of the cost.  In fact, let me perhaps coin a new term, the “Total User Experience” for the SaaS solution was much better. 

So where are we today?  Is Greenbaum right that Salesforce is headed the way of Siebel?  No.  Not yet anyway.  Siebel was the victim of a paradigm shift that came right as an extraordinary set of market conditions driving growth came to an end.  SaaS is the new paradigm.  Some analysts write about it like it’s just another feature, akin to this “deep integration” Josh mentions.  It isn’t a feature at all.  It’s a way of life that extends way beyond product.

All good things come to an end, especially for software companies.  Very few live through a paradigm shift of any consequence.  Microsoft is fighting valiantly to avoid the web paradigm shift toppling its empire, but so far has been ineffectual.

The new paradigm is SaaS and Cloud Computing.  It brings with it a host of benefits around lower Total Cost of Ownership.  In many ways, SaaS is the ultimate commoditization of on-premises software.  Aside from a lower TCO, it delivers a better User Experience by virtue of the fact that it is a Service, and not just dead bits on a disk that you have to animate yourself.  But perhaps the deadliest component of the new model for competitors is that its business model is completely disruptive to a classical software business. 

They know it is their future, yet they’re nearly powerless to bring about a transition.  The reasons are twofold.  SaaS largely demands single-minded focus.  Trying to sell both SaaS and conventional software introduces so many fundamental contradictions that no company has ever made a success of it.  Just getting transitioned over to SaaS if you’re willing to drop the old line software is exquisitely painful to a company’s internal operations, culture, and worse, financial metrics.

The lock-in that Greenbaum seeks has been transferred from investment in heavy integrations to the difficulties of even trying to sally forth and compete from a conventional software fortress.  Those delays that we hear about for SAP’s Business By Design are no accident.  If you’re into predictions, how about the prediction that those delays will get worse before they get better, and that even after the product is technically proficient, internal cultural factors will continue to slow the company’s ability to push it’s SaaS offering effectively. 

Greenbaum spends a bit of time shooting down the idea that Force is the next leg in Salesforce’s journey.  On this I tend to agree, although it has nothing to do with any PaaS stragies from Microsoft that Josh seems to favor.  Force has a number of cool aspects to it, but it takes a long time to prove out a platform and there are currently economic factors hobbling it somewhat. 

The mystery to me is when Salesforce will try some real acquisitions.  There has been talk by Phil Wainewright of the Four Horsemen of SaaS:  Concur, Omniture, Salesforce, and Taleo, making a neat acronym “COST”.  WIth Salesforce having the most valuable currency (Market Cap relative to revenues or earnings), it’s an ideal time for them to bulk up through acquisition.  This was a step Siebel executed well in its acquisitions of Scopus and nQuire (now called Siebel Analytics).  Each one, at the time, provided a healthy boost of new growth.  It could be time Salesforce followed suit. 

Meanwhile, I won’t be holding my breath for them to start failing anytime soon.  We haven’t seen the post-SaaS paradigm shift and the current  SaaS revolution has a long long way to go yet!

6 Responses to “Salesforce Headed for Siebel’s Fate?”

  1. saasy said

    what do you think of coda2go + salesforce integration work?,1000000121,39411114,00.htm

  2. smoothspan said

    Saasy, there are actually lots of integrations to Salesforce. I glossed over them to stay in the spirit of Josh’s original post, which focused on big ERP as being #1 something hard to integrate deeply with and #2 direct competitors to Salesforce.

    AppExchange has been very successful in garnering tons of integration with Salesforce. Putting aside Big Enterprise and Deep Integration, there is the moral equivalent in the SMB world. Smaller players can’t afford to pay SI’s to do integration work and they don’t have “spare” IT cycles to do it themselves. If the vendor doesn’t have it out of the box, it doesn’t get done. This, and a whole host of other TCO advantages are causing SMB’s to snap up SaaS like there is no tomorrow. It’s really the only game in town for them in many cases. That creates an ecosystem in and of itself around SaaS.

    Meanwhile, the big guys are still trying to figure out SaaS. They’re falling further behind the learning curve rather than catching up. At the same time, SaaS players are getting bigger and bigger. Salesforce will do $1B this year. It’s not Oracle/SAP big, but it’s a long way from chopped liver!



  3. plaird said

    Hi Bob –

    “All good things come to an end, especially for software companies. Very few live through a paradigm shift of any consequence.”

    I think the software giants have their work cut out for them, but I don’t think it’s a lost cause. I think the CEO has a big role to play to force an on-prem company to navigate the shift to SaaS. I talk about this very issue (and reference your post) in my blog entry: How to Survive the SaaS Revolution: Learning from the Death of DEC.

    – PJL

  4. smoothspan said

    Peter, great post on DEC, welcome and thanking for bringing it to the conversation.

    I vividly remember long ago when I was in Computer Science Grad School at Rice the dept chairman called a meeting of the inner circle to disclose some important news. He had just been to a meeting with Ken Olsen, and Olsen did not believe the personal computer had any future. This was a total shock to us, as we could feel with every fiber of our being that the PC was the future and Olsen was wrong. I couldn’t ask for a more personal reminder of your point that the CEO has a big role to play.

    However, in subsequent years as I got more interested in business strategy, and I looked at the DEC case again (as well as other cases including some closer to my livelihood!), I noticed another huge factor. DEC was also a victim of a massive sales channel disconnect. The PC’s of that era were being sold via retail stores at places like Computerland. DEC had no capacity to enter that channel at all. Worse, the ASP of a PC “deal” was too small for DEC’s traditional channels and sales tactics to be effective. In short, the business model of the PC was corrosive to DEC’s entrenched business model. Even had the CEO been completely committed to the transition, he would’ve faced an enormous job reinventing his company and cannibalizing a successful model all along the way. Metaphorically, his company had conquered a mountain that was respectable in height. But, it could see a taller mountain in the distance, and the only way to conquer that mountain was to descend to the valleys below and start climbing all over again.

    Very few companies are capable of such a paradigm shift. It’s not impossible. Concur did it, and I’ve interviewed CEO Steve Singh here twice to hear how it was done. But when you look at the swing in stock price that Concur lived through to get to the new peak, you have to doubt that more than 1 in 100 companies has what it takes to get there. Worse, the bigger the company, the harder it is. Getting back to metaphor, you need the stamina to descend the mountain you’re on and climb an entirely new mountain while a bunch of younger climbers had the luxury of starting out just climbing the new mountain and started that journey ahead of you.

    Not an enviable task!

    We’ve seen almost no evidence the big on-premises players of our day are up to it. Worse, we have evidence they’re actually retreating from it (SAP delays Business By Design) or belittling it (Larry Ellison says SaaS is uninteresting because there’s no profit to be had there).



  5. plaird said

    Bob – very interesting story! I was in elementary school at the time, so I can only read about what happened. I was hoping the blogosphere could offer up more perspective on DEC, and you delivered. Thanks!

    I found the NYTimes article while looking for historical comparison to the SaaS shift and I nearly fell out of the chair when I read this quote:

    ‘We’re sticking with the same old strategy, even though it doesn’t look too exciting,’ he said. ‘We may be the last kids on the block, but we wait until we have a better product.’

    Its hard to believe that he was so blind to the changes happening, but your story really confirms it. I think there is some of this going on with SaaS as well, but I find at least all the major vendors are doing something in the space.

    As for the sales channel problem, I agree and even in 1983 the NYTimes writer noted DEC’s channel problems. But as an employee of a major vendor I have more hope that crossing the chasm (call it Warfield’s chasm, not Moore’s) is something that can be done without the devastation that you mention.


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