The software as a service (SaaS) model of IT deployment – whereby business applications are housed in a remote, third-party datacentre and accessed via your web browser – is becoming the de facto way of doing business.
That was the claim of Marc Benioff, CEO of on-demand firm Salesforce.com, the poster child for the SaaS movement. “The biggest customer relationship management (CRM) transaction of 2007 was at Citibank and all the usual vendors were involved. We were chosen.,” he said. “We have been speaking to some of the largest and most interesting CIOs in the world. They are all going through their stack of applications and looking to move to SaaS. Believe me, that train has already left the station.
“The IT department is evolving When I started in the industry, the IS or the MIS department was all about executives who would go out and make technical decisions. They were interested in working on computer and writing their own software code. Then we had the chief information officer, but it was still about hooking up the wires and writing the custom software. Now we see the chief innovation officer. The next generation of CIOs will be more focused on innovation and not on infrastructure.
“We have all been told or hypnotised or brainwashed into thinking that we need a ton of servers and databases and that we need to integrated them all in a stack to make it work. It's a lot of work and it's a difficult path. The Cloud empowers every developer. Web 3.0 leverages the infrastructure of the internet to run your applications. Software is over. The whole concept of traditional packaged software built on a vertical stack is gone forever. We will come back in 2019 and we'll talk about how far we've left those software-based platforms behind. Applications will be built on the Cloud. We are a driver of that change and an evangelist of that change.”
So despite the positive message, Benioff seems determined – like NetSuite's Zach Nelson – to foist the term 'cloud computing' on a confused business community, as Chris Middleton in our Editor's blog discussed the week before last, here.
Benioff was in London for the inaugural Dreamforce Europe, the company's brand of user and developer conference that has previously only been staged in the firm's home city of San Francisco. The move to launch a European version is indicative of the importance that Europe plays in the growth plans of firms such as Salesforce.com and as the next front in the war with the traditional software vendors, such as SAP and Microsoft. Some 2,200 people turned up on day one at the Barbican Centre in London, to hear keynote addresses – including from musician, technologist and human rights campaigner Peter Gabriel (see this week's Editor's blog) – and attend conference sessions from an agenda of 50-plus options.
It's an important milestone in Salesforce.com's evolution. Rival firms such as SAP have stalled with their own SaaS offerings, while Microsoft only makes their version available to customers with a US zip-code. Of the SaaS start-ups, RightNow has a much smaller scale user conference, but rival NetSuite still has no UK user conference (or a US one, come to that!). There is a good opportunity for Salesforce.com to establish the same thought-leadership and mindshare in Europe as it has in the US.
It is clearly a big business opportunity as SaaS implementations in Europe are set to boom. For example, overall growth of on-demand CRM applications is expected to grow by 41 percent over the next three years, with Europe and Asia leading the charge. According to a new report from Tier1 Research, the on-demand CRM market is expected to grow by a compound annual rate of 41 percent over the next three years, driven primarily by small and midsize businesses (SMBs).
Salesforce.com passed 7,000 customers and nearly 140,000 subscribers in EMEA in the first quarter of 2009 with new customers including the likes of The Christie Group, CODA, COLT Telecom Group, DSV, Rentokil Initial and Wartsila. Globally Salesforce.com has 41,000 customers, so EMEA is still a relatively small contributor in real terms, but the growth potential is enormous. “Salesforce.com EMEA out-paced industry growth rates with 69 percent year over year revenue growth and 70 percent Q4 08 revenue growth compared to the same quarter a year before,” said Lindsey Armstrong, co-president of Salesforce.com EMEA. "Business decision makers are realizing that this is the era of SaaS. It's also the case that two of the biggest customers – Japan Post and Misys – are non-US customers.”
The firm has allied itself closely with Google in its growth, almost too closely at times perhaps as rumours that Google will buy Salesforce.com pop up with mononous regularity. But as Benioff quips: “The enemy of my enemy is my friend – and that makes Google my best friend.” The enemy in this case is Microsoft and its office productivity software such as Office, Excel and Outlook. Earlier this year Salesforce.com signed a deal with Google to resell GoogleApps, giving the free 'Office-alternatives' a channel into the corporate environment. “In two weeks, we have seen 2,000 Salesforce.com customers turn on the GoogleApps option,” said Benioff. “At Salesforce.com we have now decommissioned Office and Outlook and so on and are moving over to GoogleApps.”
For its part, Google clearly sees an alliance with Salesforce.com as being advantageous. “We are in the position of being a generation in the middle of a transformation,” said Nikesh Arora, European president of Google. “It's sometimes difficult to see where you are when you are in the middle of an reinvention. I remember back in 1995 getting a broadband connection from AOL and the biggest innovation that we had in business was that I could now send email to someone outside the company. That was new. Now we couldn't live without email.
“When Google started, there were 350 million people connected to the internet, with 30 million of them on broadband. Now we have 420 million connected to broadband. How many people could live for a week without broadband at home? When something goes from being nice to have to have to have, that's when you understand that something has become ubiquitous. The trend of cloud computing is inevitable.”
Inevitable? Probably. From the point of view of 2,200 people this week, it's certainly a compelling proposition. It's also - theoretically - a relatively recession-proof technology option. Some of the main selling points for SaaS are ease of deployment, coupled with ease of use and reduced upfront cost as you pay as you go for your software usage. So not only do you not have to cough up a huge amount of money upfront for software that you might not end up using, but you can also switch it off and stop paying if you don't need it any more. That kind of flexibility is very enticing in a time of tightening budgets and uncertain economic conditions. For the hard-pressed CFO at UK Plc, the idea of a flexible SaaS implementation as opposed to a high cost, rigid outsourcing deal must look very interesting.
