The Position Makers

w/ all the hoopla over facebook opening itself up for outside application development, i’m a bit surprised Salesforce.com (CRM) isn’t making more headlines with their announcement/official release of Force.com.after watching tour de force yesterday, a number of ramifications hit me like a rock to the head.  here’s a summary i’ve put together.  i’ll update it as things arrange themselves in my head better.

Salesforce.com and Force.com:  What’s the big deal?

 Executive Summary and Abstract: (for those pressed for time) 

This is a brief summary of Salesforce.com’s presentation titled Tour De Force.  Tour De Force itself is the presentation of the strategic future of Salesfoce.com becoming a development platform (Platform as a Service, or PaaS) for custom Software as a Service (SaaS) applications.  This is a major departure from their exclusive Customer Relationship Management (CRM) SaaS offering and represents the next stage in Internet delivered applications.

Detailed Summary Outline:

 The presentation addresses the following:

• How Salesforce.com started, briefly
  • The Enterprise Need for SaaS applications
• Where Salesforce.com is going:  SaaS to PaaS
  • What does Force.com offer?
• Software Companies’ New Biggest Threat
• Other Noteworthy Industry Ramifications

How Salesforce.com started, briefly:

Salesforce.com entered the service provider hosted application space providing CRM solutions in 1999.  Founded by former Oracle executive Marc Benioff, the concept was simple:  reduce architecture design, network infrastructure demands, and on-going maintenance costs of running a fully customized CRM solution, which for the vast majority of enterprises is the life-blood of the organization.  After eight years in business, Salesforce.com boasts over 38,100 different customers and over 1,000,000 end users. 

Enterprise Need:

Because costs for specialized IT support continually increase as well as the labor needed to create custom database architectures and network infrastructure also continue to increase due to a rapid increase in remote-access demand requiring costly Virtual Private Networks (VPNs) and Citrix-like environments, SaaS providers offer clients a solution that removes the need to house data, create infrastructure and internal support teams by hosting entire applications on the SaaS providers’ servers.  Scalability is the key to SaaS companies reaching profitability under such a model.  That being the case, the economies of scale are to the benefit of the SaaS provider since access to applications for updates, bug-fixes, and development are maintained directly by the SaaS provider. 

Summary of Benefits to using SaaS-driven solutions:  

1. Elimination of servers, reducing internal network costs
2. Elimination of security of data housing, including data redundancy; again, cost
3. Scalability, from one user to 30,000 there’s no difference
4. Ease of maintenance and updates to software solution by SaaS provider

In addition to providing the above advantages to enterprises, SaaS applications are also known for their customization capabilities.  Because Salesforce.com typified this point by opening up to API integration from a number of various solutions, Salesforce.com slowly moved to a development atmosphere where it was no longer simply the data fields that were customizable but also the User Interface (UI) as well.

SaaS to PaaS:

The customization and scalability of the data architecture and remote access led to a push for Application Programming Interface (API) releases with the goal of repurposing those applications for integration with other, seemingly unrelated applications.  This is following and building upon an industry trend to open up software applications to custom modifications by enterprise IT departments through the release of APIs.  Releasing APIs for a software solution is in many way similar to the Open-Source movement in that no longer are all the modifications and updates to an application occurring by the SaaS provider since internal teams are developing custom aspects and linkages to other software solutions with a focus on collaboration.

The customization aspect to Salesforce.com’s SaaS offering, including the acceptance of APIs through the Apex AppExchange, created an environment where Salesforce.com was no longer just a CRM provider.  Rather, they were only a half-step away from becoming a fully equipped platform for developing database intensive applications.  From the Tour De Force demos, the range in these applications is increasingly divers, from remote Dolby sound system maintenance for a nation-wide theater network to apparel manufacturing assessing risk visually, rather than just on Excel.  Not only did Salesforce.com open itself up for database architecture customization, which is a total open slate for schema design, but also User Interface (UI) manipulation. 

Due to resolution issues, actual screenshot examples are not available at this time. 

Essentially, Salesforce.com already had a number of solutions in place that allowed for it to be a near-platform development solution because of its already existing AppExchange and API integration.  The recent release of Force.com is an extraordinary leap forward for the company as it joins only a small crowd of platform-providers, that is, companies focusing exclusively on providing the infrastructure necessary for developing, running, and maintaining a SaaS application. 

Known PaaS providers:  Facebook (Facebook Platform), Ning, Amazon (S3), Salesforce.com (Force.com) and to a lesser extent, PayPal and Google.

What does Force.com offer?

The Force.com platform in itself represents a major industry push from globally dispersed IT teams requiring the same collaboration tools as internal teams easy collaboration.  Force.com includes the following tools for application development: 

1. MetaData API
2. Integrated Development Environment (IDE)
3. Sandbox
4. Code Share

1. MetaData API:  the tool that will allow for innovative, 3^rd party mash-ups, ranging from integrating PayPal payment APIs with Amazon inventory management APIs with Google Docs’API.  It’s an initial data architecture design platform which can then be pushed back to the ‘Cloud’ for further development.
2. IDE:  Creation of code editors, XML editors, library of elements needed in creating UI and logic queries, operating in a similar fashion to Visual Basic, etc.
3. Sandbox:  creates an actual development environment for testing the applications.  The key is that the sandbox is functional out of the box.  PayPal, Facebook, Ning all have their own sandboxes for testing new code developments without affecting the existing application.  . 
4. Code Share:  ties and orchestrates rest of the technologies by enabling teams to access development code, modify the code and then push the code back to its housing within the PaaS infrastructure.

SaaS Providers’ New Biggest Threat:  (i’m modifying this from a report i did for “fun” for work)

Much focus is spent internally examining the moves of other similar SaaS registration providers.  This has been prudent for quite some time as most business is lost not to internal development teams but to other online providers with a similar value offering.

This is all going to change as the next major hurtle will be in addressing the growth of enterprise IT teams specifically assigned to create custom applications based on existing APIs. 

The creation of Force.com, Salesforce.com’s development platform, represents a major shift of empowerment for those IT teams.  Specifically, because Salesforce.com is capable of housing all database data as well as integrating disparate APIs, such as mass email marketing and tracking through Eloquoa, prospecting through Hoovers, UI manipulation essentially allowing for custom form creation, Salesforce.com is now shifting the need for individual SaaS providers only marginally integrated with one another to an all-inclusive application provider where API availability and integration is the dominant decision making factor.

Simply said, SaaS providers’ newest, biggest threat is now internal IT development teams.  There will be a ramp-up time but considering the massive growth of Salesforce.com over the last few years, including the ability to cross-develop their existing client base, the window for adjustment within the IT development space should best be measured in quarters, not years.

 As concerns Salesforce.com, there is an OEM option which eliminates any instance of “salesforce” in the URL, essentially allowing for rebranding and VAR-like market development.

 Other Noteworthy Industry Ramifications: 

1. Traditional server and OS developers, such as Sun Microsystems, now become “arms dealers” for firms entering the PaaS market as they feed servers and SQL needs to the Platform Providers who in turn solve the development needs of DaaS (Development as a Service) end users.
2. Reduction of start-up costs:  rather than see new entrepreneurs bother with network creation, new companies are beginning completely virtual:  no servers, no internal network, no firewalls, etc.  Everything is handled by PaaS providers.  This lends a distinctive advantage to both founding principals and any financial backers as the initial capital outlay is significantly reduced as are on-going costs associated with running a network as PaaS providers create a “pay-as-you-go” environment.

So, what’s everyone think?  will this justify the 500+ P/E??